UK house sales outlook for 2023 remains ‘uncertain’, says Barratt
Britain’s largest housebuilder, Barratt Developments, has reported grounds for optimism in the UK housing market after an increase in sales in January – but it said the trading outlook for 2023 remains “uncertain”.
Barratt reported a “modest uplift” in reservations of new homes during the first month of the year, as a result of the return of more competitive mortgage rates for house buyers, combined with expectations that energy costs will come down and interest rates will not rise as high as previously predicted.
However, the company said there had been “more tentative demand” from prospective house buyers so far this year, although this was an improvement on the levels in late 2022.
Related: First five-year fixed mortgage under 4% since mini-budget launched by HSBC
It also warned that the recovery in sales may not be sustainable, particularly given the challenges faced by first-time buyers struggling with higher mortgage rates.
Mortgage rates soared last autumn, after Liz Truss’s disastrous mini-budget, and higher borrowing costs and economic uncertainty prompted falls in average UK house prices in recent months.
Reporting its results for the six months to the end of December, Barratt said it had forward sales of 10,854 homes valued at £2.7bn up to 29 January, although this was a fall of more than 30% from the 15,736 sales valued at £4.1bn recorded a year earlier.
The company warned that its outlook for the coming year remained dependent on how the housing market developed during the spring sales season. However, it expects to complete between 16,500 and 17,000 new homes in 2023, if there continues to be the same improved levels of home reservations during the rest of the year.
David Thomas, the chief executive of Barratt Developments, said consumer confidence had weakened in the final months of 2022, which led to lower reservation rates for future sales.
He added: “While we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.”
Lower mortgage rates are expected to help housebuilders including Barratt, and in a sign that borrowing costs are stabilising after the upheaval unleashed by September’s mini-budget, Virgin Money has become the latest lender to offer a five-year fixed-rate mortgage priced below 4%.
Virgin Money’s five-year fix is available from 3.99% for people borrowing between 65% and 90% of the cost of their home, and comes a day after HSBC became the first lender to put a five-year fixed mortgage below 4% back on the market since the autumn.
Barratt reported half-year revenue of £2.8bn in the six months from June to December, which was almost a quarter higher than the £2.2bn reported a year earlier.
The company completed 8,626 homes during the period, which was slightly higher than a year earlier. Its pre-tax profit rose by almost 16% to £522m, up from £450m a year earlier.
“While revenues increased thanks to inflated house prices, the group’s operating margins have started to come under pressure,” said Aarin Chiekrie, an equity analyst at the broker Hargreaves Lansdown.
“Recession fears have put housebuilders in a tricky spot but Barratt’s significant net cash position of £965m gives it plenty of breathing room, even if the housing market deteriorates further.”