(Commonwealth) _ Barratt Developments, the UK’s largest housebuilder, reported a significant profit drop after completing far fewer homes over the past year. In the financial year ending June, Barratt completed 14,000 homes, a sharp decline from the 17,000 it built in the previous year. The company has forecast an even lower figure for the next year, estimating between 13,000 and 13,500 new homes. This drop in home completions poses a challenge for the Labour government’s ambitious pledge to “get Britain building.”
The company’s pre-tax profit fell by three-quarters, a decline it attributed to two major factors: high interest rates, which have discouraged potential house buyers, and inflation, which has significantly driven up costs. These issues have created tough conditions for Barratt and other housebuilders across the UK. Despite this, Barratt’s Chief Executive, David Thomas, emphasized that the company remains “well-positioned to meet the strong underlying demand for new homes.”
The government’s housing policy has been a key focus, with Labour promising to build 1.5 million homes in England over the next five years. It has also pledged to reform the planning process, unlock parts of the green belt for development, and reintroduce mandatory housing targets for local councils. These measures are designed to address the ongoing housing crisis by increasing the supply of affordable and high-quality homes.
David Thomas welcomed the government’s proposed reforms, stating that changes to the planning system would be crucial in boosting housebuilding, driving economic growth, and addressing the chronic under-supply of sustainable homes in the UK. However, Barratt’s results highlight the critical impact that mortgage rates have on the company’s output. As borrowing costs rise, fewer people are purchasing homes, which in turn reduces the number of homes the company chooses to build.
The company’s financial performance underscores the broader challenges facing the UK housing market. With high interest rates making mortgages less affordable, the demand for new homes has decreased. Barratt, like other housebuilders, has had to adjust its operations accordingly, leading to fewer homes being built. Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, described Barratt’s latest results as “a painful read for investors,” noting that while the figures were in line with market expectations, they still reflect a difficult period for the company. He pointed out that fewer homes sold at lower prices meant reduced cash flow, compounding the company’s difficulties.
Chiekrie also noted that while there is hope that the new government’s reforms to planning regulations could address some of the barriers hindering housebuilders, a further easing of mortgage rates would be essential for any significant uptick in building activity. Without more affordable borrowing options, the market for new homes is likely to remain subdued.
In addition to its challenges with housing demand and costs, Barratt has also had to set aside significant funds to address safety issues in its existing buildings. The company has been conducting an ongoing review of its properties in the wake of the Grenfell Tower fire, particularly concerning removing unsafe cladding. So far, Barratt has assessed 53% of its buildings and revised its estimate for the total cost of cladding removal. The company now expects to spend £628 million on fixing these buildings, a substantial increase from the £536 million estimated the previous year. Looking ahead, Barratt is also pursuing a major acquisition of fellow housebuilder Redrow. The deal is still awaiting approval from the Competition and Markets Authority (CMA). If approved, it would further consolidate Barratt’s position in the UK housing market.
