Barratt’s profits plummet on housing slump as rising mortgage rates continue to undercut demand
Britain’s largest homebuilder posted a drop in profits as rising interest rates continue to hamper demand.
Barratt Developments said profits fell 16.2 percent to £884.3 million in the 12 months to the end of June, after surpassing £1 billion the year before.
The number of homes built and sold fell by 702 to 17,206.
Like its rivals, Barratt has fallen victim to 14 consecutive rate hikes that have hit demand with rising mortgage rates.
Interest rates have risen from 0.1 percent to 5.25 percent since December 2021 – spell misery for borrowers – and a further rise is expected this month.
Slump: Barratt Developments says profit fell 16.2% to £884.3m in 12 months to end of June, after peaking at £1bn last year
However, Bank of England Governor Andrew Bailey said yesterday that interest rates are “much closer” to their peak.
While Barratt has been hit by rising borrowing costs, the company has also seen the cost of doing business skyrocket due to inflation.
And boss David Thomas warned Britain’s “ineffective planning system” was holding back development.
But revenues rose 1 per cent to £5.32 billion last year, while the average price of a Barratt home rose 7.9 per cent to £367,600.
Shares fell 0.7 percent, or 3.3p, to 440p. Britain’s eight largest homebuilders have seen £15bn disappear from their market value since the first rate hike in December 2021.
Thomas said: ‘Clients continue to face cost of living and mortgage affordability challenges, and new developments are increasingly constrained by an ineffective planning system.
“While we expect conditions to remain difficult in the coming months, we are a resilient company.”
Earlier this year, the group said it would cut back on land purchases. A slowdown in development has fueled fears that not enough homes are being built.
Charlie Huggins, manager at broker Wealth Club, said: ‘The outlook for Barratt is bleak at best.
“Cracks are beginning to appear in the housing market, and while interest rates are about to peak, first-time buyers in the housing market remain under enormous pressure.
Until there is more clarity about the future interest rate path, it seems unlikely that market conditions will improve significantly.’
Richard Hunter, Head of Markets at Interactive Investor, says the company’s £1.1bn cash holdings and plans to cut payouts will serve this purpose well.
“Barratts is playing quite a hand with the sad cards dealt to them,” he said.