4th Sep 2024 11:42
(Alliance News) - Barratt Developments PLC on Wednesday proved a victim of housing market challenges, after seeing annual profit drop by more than three-quarters.
For the year ended June 30, the Leicestershire, England-based housebuilder posted pretax profit of GBP170.5 million, down 76% from GBP705.1 million a year prior.
Revenue fell by 22% to GBP4.17 billion from GBP5.32 billion, while total home completions came to 14,004, a 19% decline from 17,206 last year.
There was little doubt that profit decline was in part down to market factors, as Barratt explained that "demand sensitivity to current mortgage pricing", as well as "a lack of higher loan to value mortgage availability" had led to a "challenging" housing market this year.
The firm also acknowledged "notably higher interest rates and inflation".
"Despite all the talk that the UK property market has shown resilience in the face of high borrowing costs, the backdrop has not created a rich environment for Barratt Developments to prosper," concurred AJ Bell analyst Russ Mould.
"A slump in annual profits is the result of lower home completions, weaker average selling prices and reduced margins," Mould added.
In July, Deputy Prime Minister & Housing Secretary Angela Rayner announced a refresh of the UK's planning system, in order to facilitate the construction of 1.5 million new homes in the next five years.
Mandatory housing targets are due to be restored, with some low-quality green belt land freed up for construction. Rayner is also due to reverse changes made to the National Planning Policy Framework by Rishi Sunak's administration.
In a statement before the summer recess, Rayner said: "In a bid to appease their anti-housing backbenchers, [the Conservative government] made housing targets only advisable.
"They knew that this would tank housing supply, but they still did it."
Rayner told MPs that her "radical plan" would help "get the homes we desperately need", as well as "drive the growth, create jobs and breathe life back into towns and cities", reported PA.
According to Mould: "It's a waiting game for Barratt's shareholders. They can see the benefits of a new government with pro-housing policies."
As per data from the end of August, the number of mortgages approved for home buyers has now jumped to its highest level since the mini-budget was delivered under ex-prime minister, Liz Truss.
The Bank of England recorded 62,000 approvals for house purchases in July – the highest total since 65,100 were recorded in September 2022, when mortgage rates surged after then-chancellor Kwasi Kwarteng's statement.
Mortgage rates have been edging down in recent weeks, accompanied by a cut to 5% of the Bank of England base rate. By contrast, approvals for remortgaging fell to 25,100 in July from 27,300 the previous month.
Nevertheless, Barratt Developments said it expects the total number of home completions to fall further in financial 2025 to between 13,000 and 13,500. The firm did however predict that average sales outlet numbers in 2026 would beat 2024 levels.
"The recent acquisition of Redrow should help the enlarged housebuilding group to tackle cost pressures head on, as it will have greater buying power for materials and operational cost synergies as the two groups come together," said Mould of Barratt's prospects.
Barratt's full year results come shortly after the completion of its GBP2.52 billion acquisition of Redrow PLC in August, a smaller housebuilding peer. Barratt is working to finalise competition clearance before it begins the integration process.
Yet, as Mould pointed out, "interest rates are still relatively high and the Bank of England isn't expected to slash rates dramatically over the rest of the year, meaning mortgage affordability remains a challenge for many."
What the group really needs, Mould said, was for Number 10 "to get its skates on and push through planning reforms so it can get more creative in where to build new homes."
"Until that happens, and until interest rates come down further, the business doesn't have a lot of levers to pull to dramatically improve earnings."
The firm declared a final dividend of 11.80 pence per share, falling 50% from 23.50p.
Shares in Barratt Developments were trading 1.8% lower at 510.60 pence each in London on Wednesday morning.
By Holly Beveridge, Alliance News senior reporter
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