Demand for new homes in UK slumps

Barratt Developments says forward sales were 35% lower up to the end of January, compared with a year earlier, but sees 'early signs of improvement'

Britain's largest housebuilder Barratt said forward sales of its new homes last month had fallen 35 per cent year on year. Reuters
Powered by automated translation

More gloom for the UK housing market emerged on Wednesday after the country's biggest housebuilder, Barratt Developments, said its forward sales of new homes fell by 35 per cent in January, compared with the same month last year.

Forward sales at the end of January 2023 were 10,854 homes at a value of £2.7 billion, compared with 15,736 valued at £4.1 billion at the end of January last year.

That points to a 31 per cent fall in units and a 35 per cent slump in value.

In addition to this, net private reservations — the number of people putting their names down for a new house — fell by 45.6 per cent in January, compared with the same month in 2022.

The housing market in the UK has hit the brakes in recent months as soaring inflation curbs spending power, with both house prices and the number of mortgages approved by lenders in December slumping the most since the 2008 global financial crisis.

“While we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing,” said Barratt Developments chief executive David Thomas.

The company's first-half profit showed a 6.9 per cent growth in total home completions to 8,626, with adjusted profit before tax up 15.9 per cent at £521.5 million.

“However, other metrics point to the strain which the sector as a whole is beginning to face,” said Richard Hunter, head of Markets at Interactive Investor.

“Adjusted gross and operating margins fell by 1.7 per cent and 1.6 per cent, respectively, while there was a noticeable decline in reservation rates, particularly during the second quarter of the period.

“Although house prices generally were estimated to have risen by 8.8 per cent, build cost inflation remained high at around 10 per cent, thus wiping out the gains.”

Dividend slashed

In what analysts said was a clear sign that the company faces a challenging year ahead, Barratt Developments also cut the dividend on its shares by about 9 per cent.

Back in November, rival builder Persimmon in November scrapped its dividend policy and ruled out a special dividend.

“Barratt Developments is continuing to show cracks in the housing market,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“The mortgage-rate environment remains challenging for home buyers too. We saw net private reservations fell 44 per cent compared to last year, highlighting both the lack of confidence in the market, as well as reduced affordability.”

“As consumers’ incomes get stretched thin by the cost-of-living crisis, jumping on to the housing ladder and forking out cash on higher mortgages becomes much less achievable,” he said.

Spring into action?

Given the forward sales and net reservation numbers, the coming months will be crucial for both Barratt Developments and the housebuilding sector as a whole.

“This puts real focus on the coming Spring selling season, which will be key in revitalising the fortunes of the sector,” said Richard Hunter at Interactive Investor.

“If there are currently signs of cooling inflation and peaking interest rates, this could result in a new influx of potential buyers.

“By the same token, the general economic backdrop is likely to weigh on consumer sentiment although, from a broad perspective, the general shortage of UK housing supply at least provides a foundation on which to build.”

After an initial dip, Barratt Developments shares were up by 9 per cent in morning trade in London.

Updated: February 08, 2023, 11:26 AM