Barratt Homes Trading Statement

Barrat Hit by Housing Slowdown

UK house builder Barrat Developments has reported decline in sales and raising cancellation rates as conditions in the market deteriorate “significantly”.

The company said that in the 19 weeks to 11 May, reservation rates were down by a third, with a big fall since the end of March.

Barratt said the down turn was as a result of an “unprecedented” drop in the availability of mortgages and lower consumer confidence in the market.

The comments come a day after rival house builders Redrow and Galliford Try issued gloomy statements about the strength of the housing market.

Redrow said reservation levels in 2008 were half that seen in 2007 and that cancellations had increased sharply since Easter.

Galliford Try said conditions were tough and that annual profits were set to be below market expectations.

Also on Tuesday, the Council of Mortgage Lenders said the level of mortgage lending to home buyers had hit its lowest point for 33 years.

Barratt is the last of the large developers to report figures, and many in the markets had feared falls in net reservations of 60 per cent or more, in line with recent trading updates in the sector.

Net private reservations for the year were down 33.6 per cent against 2007. In line with other builders, Barratt described “a significant fall” in net reservations over the past six weeks, which Mark Clare, chief executive, estimated were down around 50 per cent on the same period last year. That was driven in particular by a rise in cancellation rates, as buyers walked away from small deposits, usually as a result of being unable to secure a mortgage. Cancellation rates have been running at about 25% since the beginning of 2008, although Barratt said the number of cancellations had risen over the past six weeks.

In its trading update, Barratt said net private reservations had averaged 276 per week. That was up from an average of 244 for the first half of the financial year, but was down by 33.6% against the same period a year earlier. Since the end of March this reservation rate had dropped to an average of 206.

The company said that the effect of the housing downturn had generated mixed reactions across the country, with the Midlands and West worst affected, while the London and South East markets were “proving to be relatively more resilient”.

Barrat said pressure on pricing was affected all regions adding that the company was offering better incentives to drive sales.

Barrat’s group chief executive Mark Clare said, “we do not expect to see a meaningful upturn in the housing market until there are improvements in the availability of mortgage finance,” The company pointed out that work on new sites was only being started “on a highly selective basis”.

Total house building revenues for the year to date were £825m compared to £893m last year, a fall of 7.6 per cent, reflecting Barratt’s relatively strong pipeline of buyers at the end of 2007. Housing completions were down 5.5 per cent.

Market speculation of a rights issue was quashed as the developer said it had paid down £200m of an £800m tranche of debt due for repayment next April, and agreed with its bankers in principle to refinance £400m for an additional two years.

Mr. Clare dismissed suggestions that there had been talks of a rights issue within the company and was quick to add: “This will effectively remove our short-term financing requirements and I hope provides greater clarity as to our funding position.”

Barratt forecast debt levels at the end of June to be £1.7bn, around the level of its half-year figure in December but slightly higher than its previous forecasts.

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