Barratt Developments, the UK’s largest housebuilder, has announced plans to reduce its housing output this year, contradicting Labour’s ambitious pledge to build hundreds of thousands of new homes.
On Wednesday, July 10, Barratt’s shares experienced the most significant decline on the FTSE 100 index, falling by 2.9%, and later trading at 2.2% lower.
The company now anticipates completing between 13,000 and 13,500 homes this year, marking a decrease of up to 7% from the 14,004 homes built in the year ending June 30.
This is a stark contrast to the previous year’s figure of 17,206 homes, reflecting an 18.6% drop. Despite the projected decline in output, Barratt remains optimistic about its financial performance.
The company expects adjusted profits before tax to surpass previous expectations, thanks to stringent cost control measures and a reduction in building materials inflation. Analysts had forecast full-year profits of £355 million.
David Thomas, Barratt’s chief executive, expressed a willingness to collaborate with the new government to tackle the UK’s housing shortage.
“We welcome the new government’s urgency and focus on housebuilding and reform of the planning system as key to both unlocking economic growth and tackling the chronic undersupply of new homes.”
David Thomas
The housing market is still reeling from the aftermath of Liz Truss’s unfunded budget in September 2022, which triggered a mortgage market crisis.
The Bank of England has been slower than anticipated in lowering interest rates, with financial markets predicting the first reduction in August or September.
After significantly scaling back land purchases over the past two years, Barratt is now beginning to acquire more land once again.
In a bid to revitalize the housing sector, new Chancellor Rachel Reeves recently announced a series of measures aimed at “getting Britain building again.”
The government plans to construct 1.5 million new homes over the next five years, starting with a task force to accelerate stalled housing projects, beginning with 14,000 homes. Additionally, 300 planning officers will be hired by local authorities to expedite the process.
Thomas recently participated in a call with Business Secretary Jonathan Reynolds and 170 other business leaders. Further meetings with ministers are also planned.
Demand From First-time Buyers Up
Barratt reported that demand from first-time buyers has stabilized and shown signs of recovery, accounting for 27% of private sales in the past year, up from 25% the previous year.
Demand among existing homeowners also remained resilient, constituting 16% of private reservations, although Barratt has had to offer sales incentives and part-exchange options to attract buyers.
Meanwhile, the housebuilding sector is witnessing a wave of consolidation. Barratt has agreed to acquire another housebuilder, Redrow, in a £2.5 billion deal, which shareholders approved in mid-May. Combined, the two companies could potentially build 18,000 homes annually.
Crest Nicholson, another UK housebuilder, announced that its board would likely recommend a £720 million all-share takeover deal from its larger rival Bellway, should a firm offer be made.
Crest shares rose by 2.9% to 245.4 percentage points following the announcement. This comes after Crest rejected a £650 million approach from Bellway a month ago.
The FTSE 250-listed builder has been struggling with losses in the first half of the year and had to slash its dividend amid volatile mortgage rates and slowing demand.
In other industry news, building materials merchant Travis Perkins has appointed Pete Redfern, the former boss of Taylor Wimpey, as its new chief executive.
Redfern, who led Taylor Wimpey for 14 years, will take over from Nick Roberts. Travis Perkins also named Geoff Drabble as its new chair.
Drabble also chairs Ferguson, a building materials distribution firm, and DS Smith, a packaging company currently under a £5.8 billion takeover by International Paper, a larger US rival.
Redfern’s annual salary at Travis Perkins will be £760,000, reflecting his extensive experience, and he will be eligible for annual cash and share bonuses at the same level as his predecessor. There are no forfeited awards from previous employment to be compensated for.
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