Housebuilder Barratt warns of ‘marked slowdown’

Company freezes hiring and cuts back on buying land amid background of soaring mortgage costs

BRITAIN’S biggest housebuilder has frozen hiring and cut back on buying land as it warns of a “marked slowdown” in the property market amid soaring mortgage costs.

Barratt Developments has slowed the number of new site openings in the face of falling demand for homes. It blamed political and economic uncertainty and rapid changes in mortgage availability as the reason for reduced homebuyer confidence.

In an update to investors, the housebuilder said its sales rates in the last three months to Christmas had nearly halved to 0.44 from 0.79 in the same period the year before. This had also forced a slump in its forward order book to 10,511 homes from 14,818.

Barratt said it had “significantly” reduced the amount of land it is buying, with a net total of 290 plots cancelled. The net cancellation compares with the net addition of 8,869 a year earlier.

David Thomas, chief executive at Barratt Developments, described this year’s outlook as “uncertain”.

He added: “We have taken a number of actions to respond to current market conditions, including significantly reducing land approvals, pausing recruitment of new employees and introducing further controls for new site openings to manage our working capital deployment. Our full-year outturn will depend on how the market evolves in the early months of 2023.”

UK house prices fell by 1.5pc between November and December, following a 2.4pc drop in November, according to Halifax. The lender expects a further 8pc fall in house prices this year.

This brought the annual growth rate down to just 2pc, down from a peak of 12.5pc in June.

The decline in property values is in direct response to higher mortgage interest rates, which have soared since Liz Truss’s mini-budget last September and are still much higher than this time last year.

According to analysts at Moneyfacts, the average two-year fixed-rate mortgage cost 5.75pc on Friday compared with a high of 6.65pc last October.

The turmoil has also hit those looking to remortgage as more than 800,000 households will see their monthly mortgage payments almost triple this year, according to data from the Office for National Statistics. An estimated 1.4m homeowners will have to remortgage this year, with 57pc currently repaying at rates below 2pc.

A homeowner with a 1.5pc 25-year mortgage on a property worth £250,000 will see their monthly repayments increase by £516 to £1,416 based on current rates. The jump would add over £6,000 to the annual cost of a mortgage.

Repayments will rise by more than £1,000 a month for borrowers with a 1.5pc 25-year mortgage on a

‘We have taken a number of actions including significantly reducing land approvals’

£500,000 property, climbing from £1,800 to £2,831.

Recent figures from the Bank of England suggested mortgage approvals fell to their lowest level in two years as interest rate rises put off buyers.

This was evident in the housebuilder’s trading statement which said it was slowing down the rate it builds homes in response “to [a] significantly lower private reservation rate” – in another blow to the construction sector which is already struggling with the impact of high interest rates.

“Reservation activity in the first quarter of the new calendar year will determine whether any further action will be required,” Mr Thomas said.

Barratt said that if the housing market continued on its current downward trend it is expected to deliver between 16,000 to 16,500 homes – down from a projected 17,475.