UK housebuilder Barratt Developments reported a sharp fall in profits after completing far fewer homes last year. The company built just 14,000 in the year to June 2019, well down on the 17,000 finalised the previous year. The decline led to a 75% fall in pre-tax profit for the year. Barratt cited high interest rates deterring housebuyers, and rising inflation pushing up costs as factors. The weak figures present an obstacle to the UK’s new government, which has pledged a major housebuilding programme.
CEO David Thomas said the company was “well-positioned” to exploit high underlying demand for new houses. Nevertheless, Barratt is forecasting the completion of between 13,000 and 13,500 new properties next year. The UK government has promised to increase the available housing stock, promising to build 1.5 million more homes in England over the next five years. Ministers have pledged to introduce housing targets for local authorities, reform the planning system, and make more green belt land available for development.
Thomas welcomed planned reforms, describing the planning system as a “key lever to drive economic growth and tackle the chronic under-supply of high-quality, sustainable homes”. Barratt, however, showed how mortgage rates impact decisions to build; the company’s results indicate the extent to which rates affect housebuilding. Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, called the figures “a painful read for investors”, adding that easing mortgage rates would be necessary for activity to “pick up significantly”.
Meanwhile, following the Grenfell tower fire, Barratt said it had set aside more money for cladding removal; having checked 53% of its buildings, the firm’s estimate for the final cost of removing cladding from buildings stands at £628m. This is significantly higher than last year’s estimate of £536m. Barratt is in the midst of acquiring fellow housebuilder Redrow, although competition regulator approval for the deal is still awaited
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