Key events (1)Barratt Development (3)
Barratt has been hit by several headwinds – including the jump in mortgage costs and the disruption caused by the mini-budget, explain Victoria Scholar, head of investment at interactive investor:
“Barratt Development said its order book on 31st December hit £2.54 million, considerably lower than £3.79 million from the same time last year while its sales rate per outlet per week hit 0.44 homes in the final quarter of 2022, falling sharply from 0.79 in same period in 2021.
Rising mortgage rates, a slowing housing market, build cost inflation and the fallout from the mini-budget have been key headwinds for Barratt Developments in recent months. Investor sentiment is sour towards the sector after a very tough year on the stock market with shares in Barratt Development down more than 40% over a one-year period. Persimmon is nursing an even more painful share price slump, down by over 50% year-on-year.
Cost-of-living pressures are prompting many potential homeowners to hold off from buying a property as they wait hopefully for mortgage rates and house prices to cool further later this year into next year. Although forecasts are for the housing market to soften this year, a chronic shortage of supply of UK housing is stemming a more aggressive slump.”
Barratt’s net land approvals were negative in the last six months of 2022, with a net 290 housing plots cancelled as it responded to the slowdown in the market.
It approved 16 new sites, but that was more than offset by 22 previously approved sites which will no longer proceed.
The approved sites added 3,003 plots, with 3,293 plots removed with respect to the sites no longer proceeding, resulting in a net cancellation of 290 plots in the half year.
Updated at 02.50 EST
Introduction: Barratt warns of ‘marked slowdown’ in housing market
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK housing market has seen a “marked slowdown” in the last six months, according to housebuilder Barratt this morning.
The UK’s largest housebuilder has told the City that demand in the first half of 2023 is likely to be hit by rising mortgage rates and the cost of living squeeze, which will “undoubtedly impact trading”.
In a trading update for the half year to 31 December, Barratt warns that the outlook for the second half of its financial year is “uncertain”. Homebuyer confidence and the availability and competitive pricing of mortgages will be “critical to the health of the UK housing market in the coming months”, it says.
#BDEV Barratt Developments states that the first half of the financial year saw a marked slowdown in the UK housing market and that the outlook for H2 is uncertain
— The Dude (@Redpanda73) January 11, 2023
If demand picks up in the spring as nomal, Barratt will be on track to complete 17,475 homes, as the market expects. But, if trading remain at recent levels, home completions will be lower – at 16,000 to 16,500.
Its forward order book has dropped to 10,511 homes, worth £2.5bn, over £1bn less than a year ago when it was 14,818 homes (worth £3.8bn).
Barratt says it has already responded to the slowdown, by significantly reducing land approvals, pausing recruitment of new employees and introducing further controls for new site openings to manage its working capital deployment.
David Thomas, chief executive, says Barratt delivered “a strong operating performance” for the last six months, despite challenges.
The first half of the financial year has however seen a marked slowdown in the UK housing market.
Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.
That ‘political and economic uncertainty’ included the turmoil around the mini-budget in September, which drove up mortgage rates and hit demand.
Barratt’s net bookings rate per average week fell to 0.30 from 10th October to the end of December, lower than the 0.69 seen during the corresponding period a year earlier.
Halifax and Nationwide have both reported that house prices have fallen in recent months, as those rising borrowing costs weighed on the market. Many forecasters predict prices will drop this year.
Barratt Development – “The outlook for the second half of FY23 is uncertain with homebuyer confidence and the availability and competitive pricing of mortgages critical to the health of the UK housing market in the coming months” pic.twitter.com/mU9zN4ms6I
— Chris Bailey (@Financial_Orbit) January 11, 2023
9.30 am GMT: World Economic Forum publishes its 2023 Global Risks Report
Noon GMT: US weekly mortgage application data
3.30pm GMT: US crude oil stocks data