Barratt flags slowdown in completions, shares soften

Barratt Developments warned on Wednesday that completions would be up to 7% lower in the current year, hit by higher mortgage costs

Updating on trading, the blue chip housebuilder said total home completions in the year to 30 June 2024 were 14,004, down on 2023’s 17,206 but at the upper end of its guidance range.

Total forward sales were in line with expectations. At the year-end, sales stood at 7,239 homes with a value of £1.9bn, compared to last year’s £2.2bn.

Barratt, which earlier this year agreed to snap up smaller rival Redrow in a £2.5bn deal, said that as a result, final adjusted pre-tax profits for the 2024 full year were likely to be "slightly higher" than it had previously forecast.

However, the shares came under pressure after it warned that home completions would likely be between 3% and 7% lower in the 2025 full year.

It said: “Although the macro backdrop remains challenging, particularly demand sensitivity to current mortgage pricing and availability, and with lower average sales outlets, we anticipate total home completions, including joint ventures, will be in the range of 13,000 to 13,500 in the 2025 full year.”

As at 1030 BST, the FTSE 100 stock had lost nearly 2% at 484p.

The UK housing market has been rocked in recent years, hit by low supply, surging inflation, higher interest rates and the cost of living crisis. It was then dealt a further blow at the end of 2022, when the then government’s disastrous mini budget sent mortgage rates soaring.

Both inflation and mortgage rates have since eased, but the cost of borrowing remains at a 16-year high while demand continues to outstrip demand.

Shares in Barratt jumped last week, along with other housebuilders, after Labour’s landslide victory.

Barratt said it welcomed the new government’s “urgency and focus on housebuilding and reform of the planning system as a key to both unlocking economic growth and tackling the chronic undersupply of new homes”.

David Thomas, chief executive, said: “During another year of economic and political uncertainty, we have delivered a strong operational performance.

“While we continue to navigate a challenging macroeconomic backdrop, we are delivering industry-leading build, sustainability and customer service. Combined with the strength of our balance sheet, this has ensured we remain resilient and responsive through the cycle.”

Russ Mould, investment direct at AJ Bell, said: “The new Labour government is determined to increase the supply of new homes, but Barratt’s latest trading update suggests it will take time for these plans to take effect.

“A 19% decrease in completions in [2024] will be following by a further decrease of 5% in the year to June 2025.

“The impact of higher interest rates and thus mortgage costs for borrowers, must be a factor here and Barratts forward order books is down as a result, a trend which probably informs management’s cautious outlook."

Barratt’s planned merger with Redrow was backed by shareholders in May. The Competition and Markets Authority is currently investigating the deal, however, with its phase 1 review due to complete next month.