House prices fell at Barratt Developments this summer, as rising interest rates bit hard into the market, taking out a big chunk out of demand from first-time buyers.
Reservations from new mortgage holders tumbled by 49% year-on-year, the FTSE 100 developer revealed today for its financial year to the end of June. And the trend is holding, with the average selling price for homes in its forward order book down almost 9% to £342,900.
The size of its forward order book fell by a third, which was “eyewatering” according to John Choong, equity analyst at InvestingReviews.co.uk. He said the fate of housebuilders depends on the Bank of England’s fight against inflation, with attention in the sector now on the consumer price index, with the next reading due in six days.
“If CPI manages to miraculously fall more than expected, it could see markets price in a lower terminal rate, allowing mortgage rates to take a breather,” Choong said.
Barratt’s house price drop came as demand for London homes looked particularly exposed, with prices in the capital higher than the rest of the country.
It said more of its homes were being rented out privately, via reservations made by Citra Living, part of Lloyds Bank. It also said there were more homes going to “registered providers of social housing”.
The builder of London’s Wembley Park Gardens and Bermondsey Heights developments cut back on the number of homes it plans to build, by 20% next year to 13,250.
David Thomas, chief executive, 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.”
According to Julie Palmer, partner at Begbies Traynor, Barratt’s update underlined the “pain that rising interest rates are causing,” not just for homebuyers “but construction companies and any businesses linked to the sector.”
She added: “The UK’s suffering a housing crisis with simply not enough new homes being built to meet demand. While that might be good news for housebuilders as it helps prop up prices, it’s a blow to those who dream of owning their own home.”
Baratt’s shares fell 19p to 399p, a drop of 5% and the biggest single fall on the FTSE 100, and there were similar drops across the sector.
