New home reservations at housebuilder Barratt have dropped amid concerns over the state of the economy, rising interest rates and more expensive mortgages.
However, Britain’s biggest home builder said despite the uncertain outlook re-tax profits are set to be in line with expectations at around £972 million.
The Leicestershire-headquartered business said net new home reservations for the last three months were down to 188 a week from 281 a year before.
The group said the lower reservation rate “reflects customer response to increased wider economic uncertainty, where growing cost-of-living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability”.
Average selling prices of a typical Barratt home are now £377,200, up from £344,300 a year ago and £316,000 three years ago.
Chief executive David Thomas said: “We continue to see strong levels of interest across the country, however private reservations remain below the level seen in full-year 2022 as customers react to the wider economic uncertainty.
“Whilst the outlook for the year is less certain, we remain on track to deliver adjusted profit before tax for the year in line with current consensus.
“We are focused on maintaining our commitment to lead the industry in the quality, energy-efficiency and sustainability of our homes and in our customer service, all of which are fundamental to our ongoing success amid a more challenging market backdrop.”
Back in July the business warned that build cost inflation of 6 per cent last year had now risen to between 9 per cent and 10 per cent due to escalating energy costs, fuel cost inflation for transport and other factors.
Barratt, which has its historic roots in the North East, gave its workers an “accelerated” 5 per cent pay rise on April 1, along with an additional one-off £1,000 to all employees below senior management level – phased over six months – to help with the cost of living crisis.
Russ Mould, investment director at online stockbroker AJ Bell said the market had been expecting bad news from the housebuilding sector “and now we’ve got it”.
He said: “Barratt Development says net private reservations have fallen and the outlook has become less certain, suggesting we’re now seeing the start of a downturn in the industry.
“While many individuals and couples aspire to own a house or flat, it’s becoming out of reach for more and more people.
“Rising interest rates means mortgages are now considerably more expensive than they were at the start of the year.
“Mortgage lenders have generally been more cautious since the global financial crisis in 2008 and certainly won’t be more relaxed now when deciding to whom they should lend money.
“Housebuilders in general are sitting on a lot of cash and so dividends look safe for now.
“The one plus point from today’s sector sell-off is that dividend yields have become even more attractive.
“The risk is that management become more cautious as we move into 2023 and think it prudent to stash away more money for a rainy day, in case we get a prolonged downturn.”
