Barratt to build up to 23% fewer homes over year ahead amid slumping demand

Barratt Developments has warned of a slump in house builds as it said cost-of-living pressures and rising mortgage rates were impacting homebuyer demand.

The housebuilding giant is forecasting its build completions to tumble by as much as 23% over 2023-24, to between 13,250 and 14,250 in 2023-24.

Prices for private sales in its forward order book have also dropped sharply, down 8.7% at £342,900 on average, partly down to the group’s use of incentives to boost demand.

The housing market is being hit by surging mortgage costs, with average two-year fixed mortgage rates jumping to a 15-year high of 6.7% earlier this week as interest rates keep rising to combat stubbornly high inflation.

Halifax recently said house prices fell at their fastest annual rate in 12 years last month, down 2.6% at £285,932.

Barratt saw demand tail off after last October’s mini-budget market chaos sent mortgage rates soaring, before recovering a little in its third quarter, though it said reservations “slowed more than normal seasonal trends” from mid-May to the end of June.

Its weekly net reservations per outlet dropped to 0.55, against 0.88 the year before, while completions slumped 12.8% in the six months to June 30, taking its overall for the year down 3.9% to 17,206.

The group said forward orders have also dropped sharply, at 8,995 homes worth £2.2 billion as at June 30, down from 13,579 homes at a value of £3.6 billion a year ago.

First-time buyer demand has been impacted the most, it added, plunging 49% year-on-year due to the ending of the Help to Buy scheme and soaring mortgage rates.

The group is set to report profits for the year to June 30 in line with market expectations but said the outlook is gloomier.

“Looking ahead, we recognise that there are significant macro-economic headwinds, most notably persistent inflation and a higher interest rate environment, which will impact UK economic growth, employment and consumer confidence and spending,” Barratt said.

Chief executive David Thomas said: “Whilst the trading backdrop has become more challenging in recent months, with many of our customers facing significant cost-of-living pressures, we have responded decisively – increasing our reservations into the private rental sector, using incentives for customers in a disciplined way and flexing our build activity, land-buying and operating costs to reflect market conditions.”