UK housing market shows signs of slowdown, says builder Barratt

The UK’s housing market is showing signs of slowing down as inflation and rising interest rates rein in buyers, according to the country’s largest housebuilder.

Barratt Developments said in its annual results statement on Wednesday that the number of homes reserved by buyers each week had fallen and was now below pre-pandemic levels. The company anticipated that house price growth would moderate as a result.

“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,” said chief executive David Thomas in a statement.

In recognition of the cost of living crisis swamping UK households, Barratt awarded all staff below senior management £1,000 in July and extended private medical insurance from senior staff to all employees in the spring.

The company’s £5.3bn revenue for the year to the end of June was almost 10 per cent higher than the previous 12 months and adjusted pre-tax profits rose 15 per cent to £1.1bn. 

On a non-adjusted basis, however, Barratt’s profits dropped 21 per cent to £642mn as it set aside hundreds of millions of pounds to fix buildings caught up in the safety crisis.

Barratt said demand for new homes remained strong, but there were clear indications that heat was dissipating from the housing market.

Estate agent Winkworth said on Wednesday that “buyers in some areas are becoming more cautious of excessive valuations, taking note of rising inflation and interest rates and either making the most of available mortgage offers or reassessing their timings”.

The UK’s listed housebuilders have suffered as expectations of a slowdown have mounted and high inflation has added to the price of development.

Barratt’s shares, which were flat following the publication of the company’s results, have fallen 44 per cent to 423p in the year to date, in line with the sector.

Echoing a similar statement from London-focused developer Berkeley Group on Tuesday, Barratt indicated on Wednesday that it had eased back on buying new land and would be undertaking a £200mn share buyback programme.

The company forecasts that build-cost inflation will continue at between 9 and 10 per cent. So far, rising house prices have ensured Barratt’s profit margins increased despite inflation, but flatlining house prices would squeeze margins.

While larger builders are trimming spending and returning surplus cash as the UK heads towards an expected recession, smaller developers are suffering more acutely.

Soaring construction costs were one reason behind a profit warning issued on Tuesday by Aim-listed builder Inland Homes. The group’s forecast of a pre-tax loss of £37mn and the departure of its chief executive sent shares down more than a quarter.