8th Feb 2023 10:59
(Alliance News) - Barratt Developments PLC on Wednesday cut its dividend and warned of "tentative demand" in the early part of 2023 as the once red-hot UK housing market slows.
UK house prices surged when the market emerged out of the initial Covid-19 lockdown in spring 2020. Prices have fallen in recent months, however, as mortgage rates surged.
For the half-year that ended on December 31, Leicestershire-based Barratt said revenue rose 24% year-on-year to GBP2.78 billion from GBP2.25 billion. Pretax profit rose 16% to GBP501.5 million from GBP432.6 million, despite operating margin worsening to 17.8% from 19.3%.
Barratt said net private reservations per active outlet per week were 0.49 in January, down 46% from 0.90 in the comparative period last year. This reflects the more "tentative demand seen in the calendar year [2023] to date", it explained.
The housebuilder cut its interim dividend 10.2 pence per share, a 8.9% decrease from 11.2p a year before. It said the payment was in line with its planned reduction in dividend cover to 2.0 times for the full-year from 2.25 times in the first half of financial 2022.
"A slight improvement in the housing market in January has reassured shareholders in Barratt Developments but the company's decision to cut its dividend suggests it is reacting to new realities," AJ Bell analyst Russ Mould commented.
"The decision to scale back the dividend is also a bit of an ominous marker for the rest of the housebuilding space."
Mould added: "One important area which has improved is the number of reservations per outlet, which in January bounced back somewhat from December lows, though still down markedly year-on-year. This reflects an easing of mortgage rates amid fresh competition between lenders and with many people expecting rates to peak in the UK soon, Barratt and its housebuilder peers will be crossing their fingers this trend continues."
In late-January, Bank of England data showed the 'effective' interest rate paid on newly-drawn mortgages increased by 32 basis points to 3.67% in December.
Mortgage rates have been on the up since an ill-fated fiscal plan spooked investors and contributed to the departures of ex-chancellor Kwasi Kwarteng and former prime minister Liz Truss last year.
The 'mini-budget' sent the pound into free-fall, bond markets into a tailspin and raised borrowing costs in autumn.
Effective interest rates stood at 3.35% in November, having risen from 3.09% in October and 2.84% in September.
Analysts at Davy added: "Current trading paints a picture of a market that is still very sluggish on the back of the end of the Help to Buy scheme [and] higher mortgage rates."
Barratt shares were 1.9% higher at 468.60 pence each in London on Wednesday morning.
By Eric Cunha, Alliance News news editor
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