Barratt’s sales rate slumps 47% on 2021 numbers

Shares in the UK’s biggest housebuilder have dropped sharply after it said sales of new homes had slumped in recent weeks amid the deepening economic uncertainty in the wake of the mini-Budget.

Barratt saw its share price drop more than 8% at one point as investors digested a trading update from the business in which it said reservations per site per week since the start of September were running at just over half the level of a year ago.

Barratt said reservations per site per week since the publication of its results on August 28 had dropped to 0.48, which is 47% down on the 0.90 recorded in the same period in 2021.

The slump in reservations follows three weeks of turmoil in the mortgage markets sparked by the chancellor’s mini-Budget, which has seen borrowing costs for those taking out new loans soar to an average of more than 6%.

The drop-off in reservations comes after the £5.3bn turnover housebuilder had already experienced a slower summer period than in 2021. Overall, it said that sales per site per week in the new financial year from the start of July had hit 0.55, compared with 0.85 in 2021.

The slower reservations mean Barratt’s forward sales position is much weaker than it was last year, with 13,314 homes in the order book, compared with 15,393 at this point last year. It said this equated to 64% of its private completions for the year, compared to 72% being sold at this point in 2021.

Barratt chief executive David Thomas, said the firm was continuing to see “strong levels of interest across the country”, and that the business remained on track to hit forecast pre-tax profit numbers for the year. “However private reservations remain below the level seen in FY22 as customers react to the wider economic uncertainty.

“While the outlook for the year is less certain, 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.”

The firm specifically linked the reduction in reservations to the mortgage rate spike prompted by the mini-Budget, saying in its update that the fall “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”.

Barratt’s numbers will be closely watched as it is the first housebuilder to come to the market with an update since the announcement of the chancellor’s growth plan sparked turmoil in the money markets in late September. Since then, housebuilder share prices have tanked with Barratt, following further falls this morning, 18% below the level it was prior to the announcement.

The price falls follow fears of a housing market crash given expectations of elevated interest rates will be necessary for longer than previously thought to quell inflation. On Monday Capital Economics predicted that housing starts could fall by nearly 40% next year.

Barratt added that it was now being “increasingly selective” in its land buying in response to the changing market conditions, and that it “now expect[s] land approvals will be substantially below replacement level” in the current financial year.

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It also said that it was keeping a very close eye on the market with regards to construction levels, which is likely to raise concerns the firm is preparing to rein in its build programmes. It said: “We will be closely monitoring changing market conditions in the coming months to ensure our site build programmes align with home delivery scheduling to meet customer commitments within our order book, as well as ongoing market demand.”

Previously Barratt has predicted ongoing housebuilding volume growth of anything up to 5% for current financial year, but the trading update said it now expected volume growth to be flat. It said: “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.

“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.

Barratt said it was keeping to its plan for a £200m share buyback programme, but would “continue to evaluate the Group’s future capital allocation policy in light of evolving market conditions.”