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  • Writer's pictureInvestment Synergy Team

Housing developers hit for £1bn

October 13 2022, Tom Howard - The Times

Close to £1 billion was knocked off the value of the biggest housebuilders yesterday amid the first signs that demand for homes is falling rapidly.

Barratt Developments, which builds more houses in Britain than any other developer, warned that its sales have fallen sharply in recent weeks as mortgage rates have surged.

Since the beginning of September, it has been selling an average of 0.48 homes per week at its sites, a 44 per cent drop compared with this time last year and 20 per cent shy of what it was selling as recently as July and August.

Barratt is now selling fewer houses each week than it was before the pandemic, which brought on a “race for space” that has consistently driven up prices to record highs during the past two-and-a-half years.

The FTSE 100 developer was founded in 1953 by Sir Lawrie Barratt, a young accountant who could not afford to buy a home, so built one instead.

Last year it built just shy of 18,000 homes and turned an adjusted profit of more than £1 billion for the first time. It had expected to build between 18,400 and 18,800 homes in its current financial year, which runs until the end of next June, but is now forecasting a similar number to last year.

Barratt is the first of the housebuilders to have updated the stock market since Kwasi Kwarteng’s mini-budget on September 23, since when mortgage rates have risen ever higher. David Thomas, the chief executive, said the slowdown in sales reflected the “wider economic uncertainty” as prospective buyers face surging borrowing costs, a cost of living crisis and fears of an imminent decline in house prices.

Shares in housebuilders have been under pressure for months amid expectations that their post-pandemic boom would have to end at some point given the gloomy economic clouds that have started to gather.

They fell further yesterday, taking the index tracking their performance down to its lowest for almost a decade.

Barratt shares dropped 17½p, or 5.1 per cent, to 325½p; Persimmon fell 75p, or 6.2 per cent, to £11.39; and Crest Nicholson was down 12p, or 6.6 per cent, to 172p. In total, the stock market values of the nine biggest housebuilders fell by about £930 million, according to Refinitiv data.

“The sales rates at Barratt are starting to show signs of the significant headwinds facing the UK housing market that are only likely to get worse in the short term,” Colin Sheridan, a property analyst at Davy, said.

Sentiment was further hit by data from the Royal Institution of Chartered Surveyors, which showed that inquiries from prospective buyers fell for the fifth month in a row.

The number of sales and instructions also continued to fall, while estate agents have turned markedly more downbeat in their predictions for house prices, having been in near-unanimous agreement earlier in the year that prices would keep rising.

Simon Rubinsohn, RICS’s chief economist, blamed the downturn largely on the “turmoil in mortgage markets”. Last week, the average rate on a two-year fixed mortgage rose above 6 per cent for the first time since the 2008 financial crisis.

Barratt said the outlook for the rest of the year was now “less certain”. Bosses hope to turn a profit of about £973 million this financial year, in line with recently cut analyst forecasts.

That confidence is because prices have been “robust”. On average, over the past three-and-a-half months Barratt has sold its houses for £377,200, up by £33,000 on a year ago.

However, many in the City expect Barratt’s profits to fall sharply in its next financial year, perhaps by as much as 75 per cent as prices and sales volumes retreat. “An era of double-digit price growth was already coming to an end but the mini-budget looks set to accelerate that process,” Tom Bill, head of UK residential research at Knight Frank, the estate agent, said.

“While we expect downwards pressure on prices, we do not expect the scale of declines seen during the global financial crisis thanks to record-low unemployment and well-capitalised lenders

Investment Synergy - ¨There is nothing certain, but the uncertain¨ the vagaries of the current direction of the UK Government ........

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