Barratt stops hiring as downturn hits volume

The UK’s biggest housebuilder has stopped hiring new staff as it revealed housing completions over the current financial year could fall by as much as 11% if the current market weakness doesn’t recover in the months ahead.

In a first half trading update today, Barratt said the volume of completions could fall as low as 16,000 in the financial year to 30 June, compared to 17,908 completions last year, if current trends continue – despite having entered the year with £3.62bn-worth of homes pre-sold.

The £5.3bn-turnover housebuilder said reservations of new homes had fallen to as low as 0.30 homes per site per week in the final months of 2022, 57% down on the same period last year, as mortgage rates soared in the wake of former chancellor Kwasi Kwarteng’s disastrous mini-Budget.

Overall, it said net reservation rates for the half year from July to the end of December had fallen to 0.44 homes per site per week, 44% down on last year, and 36% down on the equivalent period prior to the onset of the covid crisis.

In response to the market downturn, Barratt said it had put a “pause” on recruitment, and reduced site acquisitions and site openings in order to manage cash outflows. Its new approach to land purchasing saw it cancel 22 previously approved land purchases, which, despite 16 approved land acquisitions in the period, left it with a net reduction in land bank of 3,293 sites in the first half.

Chief executive David Thomas said the firm had delivered “a strong operating performance” despite the marked slowdown in the UK housing market, highlighting net cash of £965m at 31 December, down from £1.13bn in June 2022 following dividend payments.

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He said: “Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.

“Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model. We are focused on successfully navigating the challenges ahead and continuing to deliver excellent quality and service for our customers.”

The weak market saw a big impact on Barratt’s forward sales position, which fell 29% from 14,818 homes at 31 December 2021 to 10,511 by the end of 2022.

The trading update said that if net reservation rates increased “in line with normal spring trading patterns” to around 0.50 homes per outlet per week, it was likely to deliver “consensus” home completions of 17,475 – itself a reduction on the level Barratt was predicting in its most recent update in October, when it said it hoped volume would be flat on the 17,908 delivered last year. The statement added: “However, should the usual seasonal improvement not occur and trading remain at recent levels, the Group would expect to deliver total home completions for FY23 in the range of 16,000 to 16,500.”

Completions in the first half of the financial year were up 6.9% to 8,626 despite the weak market as the firm capitalised on the strong forward sales position built up during the post-pandemic boom period. Barratt said the reservation rate sequentially slowed over the first half of the year, initially sitting at 0.60 homes per site per week from July to 28 August, then down to 0.48 from then to 9 October, and then down to 0.30 from 10 October for the rest of the year.

The statement said: “The slowing reservation rate in the first quarter of FY23 reflected the political and economic uncertainties at that time, particularly around impending cost of living challenges, coupled with a limited availability of homes for early occupation given our strong forward order book. The second quarter saw a material impact from the significant escalation in mortgage interest rates on both affordability and homebuyer confidence.”

The news came as Barratt announced it had appointed a new chair to replace long-time non-exec chair John Allan, who will retire in September. Barratt said it had appointed investment banker Caroline Silver as non-exec director and chair designate with effect from June this year. Silver, who is an advisory partner at Moelis & Company, will take up the chair role on Allan’s retirement on 6 September, in what Barratt said was a “planned succession process”.

Allan said: “Caroline brings a wealth of knowledge and experience to the Board across a number of commercial, financial, investment banking, governance and board leadership roles. I am very pleased to be handing over to someone of Caroline’s standing and experience. I am certain that she will make a significant contribution to the future business and strategy of Barratt.”

Shares in Barratt initially fell as much as 3.5% on the trading update, however the builder recovered during the morning and was trading around 1% below its opening price.