12th Oct 2022 19:38
(Alliance News) - Barratt Developments PLC on Wednesday warned that private reservations have fallen year-on-year, inflaming fears that the recent shift in UK fiscal policy is harming the housing sector.
"The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market," Barratt said.
The homebuilder said it faces a troubling trio: higher interest rates, lower availability of mortgages, and economic uncertainty stemming from the cost-of-living crisis.
To some, it was obvious who the culprits were behind this decline.
"All three factors bear the fingerprints of both the government and the Bank of England and the drop in mortgage availability is a direct result of the financial market fall-out which followed the chancellor’s botched fiscal event of 23 September," AJ Bell investment director Russ Mould said.
Chancellor Kwasi Kwarteng's shock "mini" budget caused turbulence in the markets in recent weeks, as well as panic around interest rates. In response, many lenders pulled mortgage offers or hiked rates significantly.
This has led to reports of prospective homebuyers losing their deposits, and being left out of pocket for legal fees.
"If government ministers needed any evidence of how policy missteps can affect not just the financial markets but the real economy, then Barratt Developments' first quarter results statement provided it in spades," Mould continued.
Barratt shares closed down 6.4% to 321.04 pence on Wednesday in London.
Despite the decline in reservations, Barratt noted "strong levels of interest across the country". The firm expects to deliver on the current consensus adjusted pretax profit for the year of GBP972.5 million.
UBS comes in slightly higher, expecting GBP999 million, maintaining that what's "key" to the forecast is that house prices continue to hold. House prices remain 2% above budget and up 8% year-on-year, it noted.
YouGov data on Wednesday showed that homeowners' confidence in their property's value saw the steepest fall since the early days of the pandemic - which doesn't bode well for house prices, or consumer confidence.
Whilst Barratt may well be on course to deliver for this year, UBS paints a more worrying picture in the year to end June 30, 2024.
"We note that the short-term profit outlook is probably less important and it's more about the evolution into financial 2024, where we expect a substantial drop in pretax profit to GBP258 million, driven by volumes dropping -20% and prices -10% (vs financial 2022)," it noted.
Mould also sounded a note of caution: "Housebuilders' valuations are already preparing for a deep downturn in the market, thanks to the combination of bloated house prices, rising mortgage costs and sagging consumer confidence."
By Elizabeth Winter; [email protected]
Copyright 2022 Alliance News Limited. All Rights Reserved.
Related Shares:
Barratt Developments