Barratt cuts dividend amid housing crisis as rising mortgage rates continue to weigh on demand
Britain’s largest homebuilder saw profits fall as rising interest rates continue to weigh on demand.
According to Barratt Developments, adjusted profit before tax fell 16.2 per cent to £884.3m in the 12 months to the end of June, after topping £1bn a year earlier.
The number of houses built and sold fell by 702 to 17,206.
Barratt said it would cut its final dividend to 23.5p from 25.7p last year and halt share buybacks, but added that it had £1.06 billion of net cash on its balance sheet.
Slump: Barratt Developments said profit fell 16.2% to £884.3 million in the 12 months to the end of June after surpassing the £1 billion mark the year before
Like its peers, Barratt has been a victim of 14 straight rate hikes that have hurt demand as mortgage rates soar.
Rates have risen from 0.1 percent to 5.25 percent since December 2021 – spelling disaster for borrowers – and another hike is expected this month.
However, Bank of England Governor Andrew Bailey said yesterday that interest rates were “much closer” to their peak.
While affected by rising borrowing costs, Barratt also experienced inflation-driven increases in the cost of doing business.
And boss David Thomas warned that Britain’s “ineffective planning system” is holding back development.
But revenue rose 1 per cent to £5.32 billion last year as the median price of a home in Barratt rose 7.9 per cent to £367,600.
Its shares fell 0.7 percent, or 3.3 pence, to 440 pence. Britain’s eight largest homebuilders have lost £15 billion in market value since the first rate hike in December 2021.
Thomas said, “Customers continue to face cost-of-living and mortgage affordability challenges, and new developments are increasingly constrained by an ineffective planning system.”
“While we expect the environment to remain difficult in the coming months, we are a resilient company.”
Earlier this year, the group announced that it would limit its land purchases. A slowdown in development has fueled fears that insufficient housing will be built.
Charlie Huggins, manager at Broker Wealth Club, said: “Barratt’s prospects are bleak at best.”
“Cracks are beginning to appear in the housing market and while interest rates may be close to peaking, first-time buyers remain under tremendous pressure.”
Until there is greater clarity about the future path of interest rates, market conditions are unlikely to improve significantly.”
Richard Hunter, market head at Interactive Investor, said the company’s £1.1 billion cash position and plans to cut distributions are a plus.
“Barratts is playing a good hand despite the sad cards they’re dealt,” he said.