Menu

Housebuilders Barratt and Berkeley post another set of strong results but their shares slide on warnings of market slowdown

There were more good numbers from UK housebuilders today as Barratt Developments and Berkeley Homes posted rising profits despite signs of a slowdown in the housing market.

Barratt, the UK’s largest housebuilder, said pre-tax profits rose 12 per cent to £765.1million in the year to June 30, while revenue rose 9.8 per cent to £4.65billion.

Meanwhile, London-focused Berkeley said that despite the capital’s market being hit hard by Brexit and stamp duty increases, the group was in ‘excellent’ shape and expected profits for the current year to be ‘at least as strong’ as the previous.

Defying the slowdown: Both Barratt and Berkeley have posted rising profits

Defying the slowdown: Both Barratt and Berkeley have posted rising profits

Housebuilders have been enjoying years of easy profits thanks to the Government’s Help to Buy scheme, rising demand, undersupply of new homes, ultra-low interest rates and good mortgage availability.

Barratt results show it kept profiting from rising prices, with the average selling price shooting up to 6 per cent to £275,200, with private home prices 8 per cent higher.

However, the number of homes it built was little changed on last year, despite pressure from the Government to build more to front the nationwide’s shortage of homes.

Barratt said total completions came in at 17,395, just 76 more homes than last year, although the figure is its highest in nine years. It expects next year to be not much different, forecasting only ‘modest’ growth in housebuilding activity.

Nevertheless, chief executive David Thomas said the group had started the new financial year in a good position, with forward sales up 13.8 per cent as at the beginning of September, compared to the same time last year.

He said: ‘The group starts the new financial year in a good position with a strong balance sheet, healthy forward sales and we continue to see robust consumer demand supported by a positive mortgage environment.’

The group confirmed the final dividend has increased 39 per cent to 17.1p per share. This, together with a special dividend of 17.3p per share, is set to be paid in November.

Shares in Barratt fell 3.5 per cent, or 21.75p, to 602.25p in morning trading.

Meanwhile Berkeley, which is holding its annual general meeting today, reiterated guidance of £3billion in pre-tax profits for the five years to April 2021 despite a difficult London market, where new construction levels were 30 per cent lower than in 2015.

It said in a statement: ‘While Berkeley is in excellent shape, the London market continues to be adversely impacted by both uncertainty around the terms and implications of Brexit and the changes in recent years to stamp duty land tax and mortgage interest deductibility.

‘This has been partly offset by good availability of mortgage finance at low interest rates, favourable currency exchange rates and the quality of Berkeley’s well-presented and well-located homes.’

It also said that trading for the first four months of the financial year has been in line with expectations and sales prices are above business plan levels.

London-focused Berkeley said that despite the capital¿s market being hit hard by Brexit and stamp duty increases, the group was in ¿excellent¿ shape

London-focused Berkeley said that despite the capital’s market being hit hard by Brexit and stamp duty increases, the group was in ‘excellent’ shape

Shares in Berkeley fell 2.5 per cent, or 93p, to 3,658p in morning trading. The group will be promoted into the FTSE 100 next month after shrugging off difficult market conditions in recent years.

The housebuilders’ results show house prices in the new-build sector continue to rise as demand remains strong thanks to the Government’s Help to Buy policies and record low interest rates.

But experts are unsure how long this can last, while there are mounting signs the wider property market is cooling amid sluggish economic growth.

Industry data points to a wider slowdown in the housing market. The latest figures from Nationwide Building Society showed house prices dropped by 0.1 per cent in August, signalling that pressure on household finances from Brexit-fuelled inflation is hitting buyer confidence.

George Salmon, equity analyst at Hargreaves Lansdown, said housebuilders continued to see profits rocket despite a weaker housing market partly because they are propped up by Government policy.

Confidence in the UK construction industry has fallen to a 12 month low and recent surveys suggest that house price growth is coming off the boil, yet builders continue to deliver double digit profit growth and remain robustly confident.

Salmon said: ‘The slump in the latest PMI figures can be mostly attributed to a downturn in commercial building rather than residential, and most of the downwards pressure on prices is coming from the top end of the housing market in the South East, not the more affordable properties the builders are typically concerned with. At this end of the property ladder, demand remains strong and the government’s Help to Buy scheme continues to lend support.

‘Nonetheless, investors should remember that we are very much in goldilocks territory, and the combination of low interest rates and favourable government policy can’t last forever.’