Barratt Developments warns of U.K. housing market uncertainty in second half

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By Scott Kanowsky 

AiVIF.com -- Shares in Barratt Developments PLC (LON:BDEV) dropped on Wednesday after the U.K. homebuilder warned of looming uncertainty in the British real estate market despite reporting an uptick in home completions in the first half.

In a statement, the company said it is unknown how much homebuyer confidence and a recent spike in mortgage prices will impact its performance over the second half of its 2023 fiscal year.

Barratt flagged that, should a typical seasonal improvement in net reservation rates not occur in the spring, the annual number of home completions would dip to between 16,000 to 16,500. That would be below consensus estimates of 17,475.

"The outlook reflects a challenging current market backdrop, as our customers face increased costs of borrowing and ongoing cost of living challenges, which will undoubtedly impact trading in the second half," Barratt said.

In the six months to December 31, total home completions advanced by 6.9% despite a first quarter marked by political turmoil in the U.K. that led to a decline in mortgage approvals. A recent spike in interest rates by the Bank of England as a tool to fight inflation has also pushed up mortgage costs, which the central bank said has contributed to a deceleration in demand.

The sales rate of 0.44 net private reservations per active outlet per week fell compared to 0.79 in the half-year period of the prior fiscal year. However, the average selling price grew by around 14.6% to approximately £330k (£1 = $1.2123), which Barratt said reflected an elevated proportion of completions in London and underlying house price inflation.

Analysts at Investec noted that the operational performance from Barratt in the first half was "strong," but called the slowdown in the sales rate "marked." They added that focus will now turn to how the spring selling season develops for both sales rates and pricing.