Barratts Reports Marked Slowdown in UK Housing Market

BARRATT DEVELOPMENTS PLC reports it has experienced a “marked slowdown in the UK housing market” with forward orders falling by 40%, in its half year trading update to the end of 2022.

The company had 10,511 homes on order at a value of £2,544.4m on 31 December 2022, compared to 14,818 valued at £3,794.3m on 31 December 2021.

Construction activity was curbed to an average of 333 homes built each week as the business moved to align production with fewer reservations.

While total home completions increased by 6.9% to 8,626 in the second six months of 2022, catching up with existing orders, forward sales rates plummeted to 0.44 net private reservations per active outlet per week, compared to 0.79 in the first half of the year.

Yet, the average selling price increased by 14.6% to £330k per house, up from £288.0k per house in the first half of the year.

Barratts has also cancelled building on 3293 plots, which, set against 3,003 plots starting construction leaves a net cancellation of 290 plots – compared to the positive addition of 8869 plots a year earlier.

Responding to market conditions, Barratts has significantly reduced land approvals, paused employee recruitment and has controlled new site openings to manage working capital. It says reservation activity in the first quarter of the new calendar year will determine whether any further action will be required.

Marked Slowdown

Chief Executive, David Thomas, said: “We have delivered a strong operating performance for the six months to 31 December 2022. This was possible because of our significant forward order book at 30 June 2022.

“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.

“Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model. We are focused on successfully navigating the challenges ahead and continuing to deliver excellent quality and service for our customers.”

Active Outlets

The number of average active outlets in the half year rose by 6.8% to 360 from the prior year. The growth in active outlets has been driven by launching 52 new outlets in the first half of the year, but also reflects the impact of the significantly lower private reservation rate, extending the average sale outlet’s life.

Forward sales have reduced by 29% to 10,511 homes , while their value has reduced by 32.9% to £2,544.4m. Nevertheless, the company is now 77% forward sold on home completions for the coming year (compared to 89% a year earlier for 2022), of which approximately 86% are either completed or exchanged.

The company’s sustainability performance has been recognised in the 2022 CDP’s Climate Change A List for Leadership, one of just 283 companies worldwide and the top-rated UK housebuilder.

Barratts also says it remains in “constructive discussions” with the Department of Housing, Levelling-up and Communities about the legal agreement to codify the principles of the Building Safety Pledge signed in April 2022. The pledge is to commit to meeting the costs of replacing dangerous cladding on high rise buildings

Outlook

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.

The coming year’s results will depend on how usual spring trading patterns develop. If they are normal Barratts says it will remain on track to deliver 17,475 home completions. Otherwise, it estimates total home completions for 2023 of 16,000-16,500.

 

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