13th Jul 2023 10:23
(Alliance New) - Barratt Developments PLC shares dropped on Thursday morning in London, and other housebuilders followed suit, as analysts questioned whether housebuilders would be able to tackle higher interest rates in the UK.
"UK housebuilders are languishing at the bottom of the UK index following a trading update from Barratt Developments which highlighted the strain on the sector from higher interest rates and build cost inflation," said interactive investor head of investment, Victoria Scholar.
Barratt fell 4.7%, with Taylor Wimpey PLC falling 3.5%, and Persimmon PLC and Berkeley Group Holdings PLC both down 2.0% in a negative read across.
In the FTSE 250, Crest Nicholson Holdings PLC shed 3.5%, Vistry Group PLC fell by 2.5%, and Bellway PLC was down 2.4%.
Barratt Developments on Thursday forecast a sharp decline in home completions next year, amid a slump in demand.
"Housebuilder Barratt Developments may be sticking with its guidance for now but there was little else but gloom in its latest update. Completions are down, people are buying fewer of its homes and the number of first-time buyers has dropped off alarmingly," said AJ Bell head of financial analysis, Danni Hewson.
The Leicestershire, England-based housebuilder expects adjusted pretax profit in the financial year ended June 30 to be in line with market expectations, citing consensus of GBP800.6 million. This will be down 16% from GBP1.05 billion a year prior.
Over the year, it said total home completions fell by 14% to 17,206 from 17,908 year-on-year.
It expects a much sharper decline in financial 2024 to a range of 13,250 to 14,250. Based on this, Davy said: "We expect that this will mean a modest downgrade to market expectations which we believe to be above 14,000 units."
Looking ahead, the company noted a solid order book for financial 2024, with total forward sales, including joint ventures, of 8,995 homes in 2023 at a value of GBP2.22 billion, down 39% from GBP3.62 million.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, commented: "The recent hike in interest rates to 5.0% by the Bank of England is likely to make conditions tougher for Barratt moving forward. As inflation proves stickier than previously thought, interest rates are now expected to remain higher for longer, causing more challenges for buyers."
In June, the Bank of England's hike took the UK's benchmark bank rate to 5.00% from 4.50% previously and came as somewhat of a surprise to markets. The BoE has now hiked for 13 meetings in succession.
Liberum analyst Edward Prest noted that "sales rates impacted by higher mortgage rates." He added that financial 2024 will depend on how sales rates develop through the year, which will be determined by the path of mortgage rates.
AJ Bell's Hewson believes that "none of this will come as a great shock to the market," noting mortgage rates as well the state-backed Help to Buy scheme "has dropped off."
"For years housebuilders benefited from almost-perfect conditions. Buyers could borrow easily and at extremely low rates, the government provided its own help, and supply and demand dynamics underpinned rising house prices. Mounting costs started to become more of an issue for the sector, but for a while it could comfortably absorb these thanks to the robust health of the property market. That is no longer the case and so margins and profitability are under pressure," Hewson continued.
The stocks also took a hit following a report from the Royal Institution of Chartered Surveyors. UK house hunter inquiries, sales and property prices slipped back further in June as mortgage rates increased, the surveyors said.
Barratt will publish its full-year results on September 6.
By Sophie Rose, Alliance News reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Barratt DevelopmentsTaylor WimpeyPersimmonBerkeley GroupCrest NicholsonVistry GrpBellway