Barratt says home sales fall as mortgage deals dry up

Shares in Barratt fell on Wednesday as the UK's biggest housebuilder said new home sales were falling as higher costs and fewer mortgages amid the cost-of-living crisis were deterring customers.

Barratt said net weekly private reservations fell to an average 188 from 281 in the July 1 - October 9 period. It added that adjusted full-year pre-tax profits are expected to come in at £972.5m - in line with estimates, but lower than previous guidance.

“The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market,” Barratt said in a trading update.

Interest rates have been rising as central banks fight surging inflation. Britain has also been hit by the government’s ill-received recent mini-budget which introduced a swathe of unfunded tax cuts, sending markets into freefall and forcing mortgage providers to pull many loan deals.

Mortgage rates have also surged, with some two-year fixed-rate loan now touching 7%.

“Based on our completions to date, our strong forward order book and current market conditions, we now expect wholly owned completions to be in line with those reported in FY22,” the company added.

Net land approvals have were also markedly down year on year to 813 plots on three sites from 3,735 on 15 sites in 2021.

"Reflecting the strength of our existing land bank, the increased uncertainty in the sales market and the highly competitive nature of the land market at present where supply remains limited, we now expect land approvals will be substantially below replacement level in full-year 2023," Barratt said.

Analysts at Jefferies said that while the firm's management was still "comfortable" with the full-year profit consensus, this had been edging lower in recent weeks.

Nuances of trading in last weeks will (be) important for sentiment, but it remains too early for much clarity on what the downturn looks like. But retrenching in land buying, although yet to be followed by build, will be important for cash preservation - and also supply dynamics going into a slow down," the wrote in a note to clients.

"At 0.75x price to net tangible asset value, Barratt is cheap, but with news flow likely to continue to be negative, for us it is too early to bottom-fish on valuation."

Reporting by Frank Prenesti for Sharecast.com