As Barratt Developments signals a UK housing slowdown, others are keen to point out the upside to the position of large residential builders.
On Wednesday, Barratt said net private reservations had fallen demonstrating a slowdown caused by significant changes in mortgage rates. Total completions in the first half increased from 8,067 tp 8,626, but forward sales dropped at the end of 2022 to 10,511 – a 21% decline on 2021.
Aarin Chiekrie, equity analyst at share dealing group, Hargreaves Lansdown, said: ‘Barratt warned investors of a marked slowdown in the UK housing market in its latest trading update, which saw the total order book value fall from £3.8 bn at the end of 2021, to £2.5 bn by the end of 2022. Reservation rates also fell by more than 100 homes per week over this period.’
However, the analyst added: ‘While the outlook for the second half of Barratt’s financial year remains uncertain, we’re cautiously optimistic for the group’s prospects in the long run.'
'Recession fears have put housebuilders in a tricky spot, but Barratt’s significant net cash position of £965 mln gives it plenty of wiggle room compared to peers, even if the housing market deteriorates further.’
Law firm Addleshaw Goddard weighed in on the back of the trading update, which has sparked doomy reports in the UK mainstream media.
Fraser Ritson, partner, said: ‘We might not see as many new projects coming through the big housebuilders but they'll almost certainly be able to weather the storm given the profits they made as property demand soared during the pandemic.’
That said, the law firm added smaller companies might not weather the storm so easily. ‘Smaller housebuilders are in a more precarious situation as access to cheap development finance dries up and market fears deepen,’ said Ritson. ‘Many operate on fairly tight margins and can't afford to just halt operations or make a loss from selling on their assets at an unfavourable rate.’
Catherine Williams, real estate partner, added: ‘It's been a challenging time for the major housebuilders, facing a combination of supply chain issues, spiralling construction costs and the fallout from last year's mini-budget.’
‘On the positive side, as Barratt have indicated, the major housebuilders still have a good land bank and we are seeing acquisitions coming through. They seem largely now to have accommodated the ending of help to buy and accepted that nothing new will replace it, but would still be keen for some further investment and reform in the planning system.’
Meanwhile, S&P Global Ratings has forecast that European housing prices are set to decline - but not crash - in most countries in the region over 2023 and through 2024.
It said house prices and investment will suffer from rapidly rising mortgage rates, with some countries taking longer than others to adapt to higher rates.
UK house prices are expected to fall 3.5% in 2023, after rising around 9.5% in 2022.
Although prices will decline less than initially feared, a strong rebound over the next three years remains unlikely, as the downward adjustment in housing prices to higher interest rates will take time.
