Barratt makes bumper profit but property market may be coming off the boil

Housebuilding giant Barratt Developments has posted record annual results but added to signs that the UK’s property market may be cooling with its latest reservation figures.

Underlying pre-tax profits hit an all-time high of £1.05 billion for the year to the end of June, up 14.7 per cent on the previous year, on revenues up 9.5 per cent at £5.3bn.

But in a sign that home-buyer demand may be dampening due to rising interest rates and cost-of-living pressures, the group revealed that weekly net private reservations per site fell to 0.6 since its year end - down from 0.82 in the year to June and below the 0.7 level seen before the pandemic.

It added that it expects house price growth to ease back over the coming months “whilst build cost inflation continues at between 9 per cent and 10 per cent”, which could hold back growth in profit margins.

Barratt told investors: “Looking ahead, we recognise that significant macroeconomic uncertainties remain, most notably around inflation, energy costs and interest rates, and their impacts on UK economic growth, employment, and consumer confidence and spending.

“International incidents, notably the ongoing conflict in Ukraine, could also disrupt global supply chains and further affect confidence at home.

“The board will continue to monitor and respond to changes in the market and the wider economy, but believes that our operating performance, forward order book and very strong financial position provide us with both the resilience and flexibility to react to changes in the operating environment in 2022-23 and as the market evolves thereafter.”

Mark Crouch, analyst at social investing network eToro, noted: “Continued strong demand is benefitting housebuilders such as Barratt Developments. However, at best, there are signs of a softening in the UK’s housing market and, at worst, a potentially painful retraction.

Barratt Developments ranks as the UK's largest housebuilder with a string of projects across Scotland.

“A combination of higher interest rates, falling real incomes, soaring inflation and a gloomy economic outlook are likely to hit demand as we enter the back end of the year. We are starting to see that with slowing house price growth.”

Barratt launched a £200 million share buyback programme after its full-year performance, with the first tranche of £50m to be completed by the end of 2022.

On a reported basis, its pre-tax profits fell 20.9 per cent to £642.3m, largely due to a £408.2m hit from a mounting bill to address fire safety concerns on tall buildings in the wake of the Grenfell Tower tragedy.

The group said that despite wider economic pressures, it still expects to grow house completions to between 18,400 and 18,800 in 2022-23, up from 17,908 in the year to June.

It added that its forward sales remain “strong”, with its order book standing at 14,058 homes or £3.81bn, against £3.84bn a year earlier.

Richard Hunter, head of markets at investment platform Interactive Investor, said: “However strong Barratt’s financial foundations might be, the sector is suffering from some subsidence on a multitude of concerns. Rising interest rates could impact consumer confidence and there are also some signs of a cooling market in terms of house prices.”