Major housebuilder warns of housing market slowdown

Housebuilder Barratt Developments has implemented a hiring freeze and reduced land approvals as it warns of uncertain buyer confidence.

A half-year trading update from the major housebuilder for the six months to 31 December 2022 warned rapid changes in mortgage rates have reduced affordability, homebuyer confidence and reservation activity.

The firm said the outlook for the second half of 2023 is uncertain, “with homebuyer confidence and the availability and competitive pricing of mortgages critical to the health of the UK housing market in the coming months.”

The company said it has taken a number of actions to respond to current market conditions, including significantly reducing land approvals, pausing recruitment of new employees and introducing further controls for new site openings to manage our working capital deployment. 

It said: “Reservation activity in the first quarter of the new calendar year will determine whether any further action will be required.  

“The group is in a strong financial position with a substantial net cash balance and a solid forward sales position. This provides us with a robust platform and gives us flexibility to continue to respond to market conditions as they evolve throughout the coming year.

“With our excellent land bank and highly experienced operational teams throughout our business, we remain well placed to continue to deliver much-needed, high-quality and energy-efficient, sustainable homes across the country.”

David Thomas, chief executive of Barratt Developments, added: “We have delivered a strong operating performance for the six months to 31 December 2022. This was possible because of our significant forward order book at 30 June 2022 and the tremendous efforts of our employees, sub-contractors and supply chain partners.

“The first half of the financial year has however seen a marked slowdown in the UK housing market. Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.

“Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model. We are focused on successfully navigating the challenges ahead and continuing to deliver excellent quality and service for our customers."

Commenting on the update, Julie Palmer, partner at Begbies Traynor, said: “Having enjoyed more than a decade of rock-bottom rates, buyers are pulling back from making long-term financial commitments on mortgages as the cost-of-living crisis bites.

“Barratt clearly recognises this, warning that the ‘competitive pricing’ of home loans is ‘critical’ to the industry’s future over the next few months.

“Barratt’s bosses have already taken action to shore up the business, including freezing recruitment and cutting back on new sites, though they warned more action may be needed unless the market gets back on to firmer ground in the next few months.

“Although Barratt is well funded with almost £1bn in cash on the balance sheet, a lengthy slowdown could put pressure on the £200m share buyback it announced in the autumn if its finances need shoring up.

“What’s interesting is there is no update on how inflation is pushing up costs. In October the company said it expected build cost inflation to run at between 9% and 10% in the coming year, as materials, labour and other bills made operations more expensive. Inflation may be peaking, but the total cost of building a home is certainly more expensive than it was a year ago, meaning that Barratt is being squeezed from both ends, as wary buyers seek lower prices.”