Britain’s biggest housebuilder, Barratt Developments, cited reasons for optimism in the UK housing market after sales rose in January – but said the trading outlook for 2023 remains “uncertain”.
Barratt reported a “modest increase” in new home bookings in the first month of the year, as a result of the return of more competitive mortgage rates for home buyers, combined with expectations that energy costs will fall and interest rates will not rise as high as predicted.
However, the firm said there had been “more tentative demand” from prospective homebuyers so far this year, although this was an improvement on levels at the end of 2022.
He also warned that the recovery in sales may not be sustainable, particularly given the challenges facing first-time buyers struggling with higher mortgage rates.
Mortgage rates soared last autumn following Liz Truss’ disastrous mini-budget, and higher borrowing costs and economic uncertainty have caused average UK house prices to fall in recent months.
Reporting its results for the half to the end of December, Barratt said it had sold 10,854 homes worth £2.7bn in the year to January 29, although this was a drop of more than 30% from 15,736 sales worth £4.1bn £ recorded a year earlier.
The company warned that its outlook for next year still depends on how the housing market developed during the spring sales period. However, it expects to complete between 16,500 and 17,000 new homes in 2023 if the same improved levels of house bookings continue through the rest of the year.
David Thomas, chief executive of Barratt Developments, said consumer confidence had weakened in the final months of 2022, leading to lower booking rates for future sales.
He added: “While we have seen some early signs of improvement in current trading in January, we will need to see continued momentum over the coming months before we can be confident that these difficult trading conditions are easing.”
Lower mortgage rates are expected to help housebuilders, including Barratt, and in a sign that borrowing costs are stabilizing after the turmoil unleashed by September’s mini-budget, Virgin Money has become the latest lender to offer a five-year fixed-rate mortgage below from 4 %.
Virgin Money’s five-year fix is available from 3.99% for people borrowing between 65% and 90% of the cost of their home and comes a day after HSBC became the first lender to bring back a five-year fixed mortgage below 4%. on the market from autumn.
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Barratt reported half-year revenue of £2.8bn in the six-month period from June to December, which was almost a quarter higher than the £2.2bn reported a year earlier.
The company completed 8,626 homes during the period, which was slightly higher than last year. Its pre-tax profits rose almost 16% to £522m, from £450m a year earlier.
“While revenues have increased thanks to inflated house prices, the group’s operating margins have started to come under pressure,” said Aarin Chiekrie, equities analyst at brokerage Hargreaves Lansdown.
“Fears of a recession have put housebuilders on edge, but Barratt’s substantial net cash position of £965m gives it plenty of breathing room even if the housing market deteriorates further.”