Barratt FY profits fall, no buyback as rising mortgage costs bite

The company recorded a 16% fall in adjusted pre-tax profit to £884.3m. The full-year dividend was cut to 33.7p a share from 36.9p each a year ago.

“Looking ahead, we recognise that there are significant macro-economic headwinds, most notably the continuing inflationary pressures and the resulting interest rate environment which is impacting mortgage affordability and availability in the UK, as well as economic growth, employment and consumer confidence and spending,” Barratt said in a statement.

Forward sales, which measure housing demand, were down 36% year on year to £2.44bn as of August 27.

On a statutory basis, pre-tax profit was £884.3m for the year to June 30, compared with a company-compiled analysts' consensus of £882m.

Inflation and 14 consecutive interest rate rises have squeezed household incomes with wages failing to keep pace. Banks have have also hiked mortgage rates, putting the price of a new home well out of reach for a growing number of people.

The market was also battered by the disastrous "mini-budget" of failed prime minister Liz Truss and former finance minister Kwasi Kwarteng who had proposed a £44bn package of unfunded tax cuts which sent bond markets into a spiral and saw thousands of mortgage products pulled by lenders.

Barratt built 17,206 homes in the financial year, down 3.9% compared with 2022, and now plans to cut the number of houses it builds in the current fiscal to between 13,250 and 14,250.

"With interest rates set to remain higher for longer, consumer confidence and spending will continue to come under pressure this year, and it could be a while before momentum really picks back up again. Barratt’s valuation’s already trading well below the long-term average, so the market slowdown looks well priced in," said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

"But it’s not all doom and gloom. Build cost inflation looks set to ease to mid single-digits this year. And a sharp reduction in land spend last year more than offset the share buyback programme, helping to keep Barratt’s net cash position broadly flat at a mighty £1.1bn. That provides plenty of flexibility to smooth out any future bumps in the road."

Reporting by Frank Prenesti for Sharecast.com