Britain’s biggest housebuilder has warned of a tough market, with would-be buyers still struggling to secure an affordable mortgage.
With people taking longer to reserve a new home, Barratt Developments’ forward sales fell to 9,221 in the three months to 8 October from 13,314 a year earlier. Forward sales are agreements between a builder and a buyer to complete the sale at a specified date. At £2.4bn, they are worth £800m less than last year.
The company said the outlook for the year ahead remained “uncertain with the availability and pricing of mortgages critical to the long-term health of the UK housing market”.
UK house prices fell at the fastest annual rate in 14 years last month, as the fallout from last year’s disastrous mini-budget and the Bank of England’s successive interest rate rises fed through to the market.
Barratt is also feeling the absence of the government’s help -to-buy scheme, designed to help first-time buyers, which accounted for 12% of its private home sales a year ago. The last applications for the scheme had to be submitted by 31 October 2022.
Like other housebuilders, Barratt has scaled back land purchases and it said it would stick to its “highly selective approach” over the next year.
David Thomas, the Barratt chief executive, said: “The trading environment remains difficult, with potential homebuyers still facing mortgage challenges.”
Mortgage rates shot up as the Bank of England raised interest rates 14 times since the end of 2021 to 5.25%. It unexpectedly kept them on hold at its September meeting, offering mortgage holders hope that borrowing costs may have peaked. Since then, a number of mortgage lenders have cut their rates but they remain far higher than they were in recent years.
People are also struggling with rising living costs and high asking prices despite the slowing market, prompting a quarter of young homeowners to take out “marathon” mortgages lasting 35 years to spread out their payments and make them more affordable.
Charlie Huggins, a portfolio manager at the investment adviser Wealth Club, said: “New homebuyers are still exercising considerable caution, given the higher cost and reduced availability of mortgages.
“Barratt is doing all it can to weather the current storm in the housing market. The group has taken a knife to costs, has stepped back from land purchases and is offering greater incentives to buyers. The reality, however, is that there is so much out of its control. Its destiny depends to a considerable extent on housing market conditions.”
Barratt shares fell 2% in early trading, to value the business at just over £4bn.
Bellway, another large housebuilder, on Tuesday cut its output estimate for this year by a third and reported an 18% drop in full-year profits to £533m. It completed 10,945 homes in the year to 31 July, close to its 2022 record of 11,198. This year, it is aiming for 7,500 completions, a 31% drop.
The firm noted that the final outcome would depend on the “trajectory of mortgage interest rates and the strength of demand in the autumn and spring selling seasons”.
