Barratt sees strong start to year

Barratt Developments' chief executive said its recovery was aided by the attractive price of land during the economic downturn

Published: 9:34am, 22nd February 2012
Updated: 4:28am, 23rd February 2012

Barratt Developments has revealed a strong start to its spring selling season after reservations jumped by a fifth on a year earlier.

The housebuilder said the performance reinforced its optimism after a return of half-year profits with a surplus of £21.6 million for the six months to December 31, compared with losses of £4.6 million a year ago.

Average selling prices in the half-year rose by 3.1% to £181,200, fuelled by greater robustness in the South East, where it has many of its 382 sites.

Chief executive Mark Clare said the acquisition of land at attractive prices during the economic downturn was driving its recovery. He added: "Over the last six months we have continued to improve the performance of the business, despite the wider economic uncertainty."

While most housebuilders have reported strong growth in recent months, there are fears of a slump when first time buyers are required to start paying stamp duty again next month.

However, builders hope that the Government's mortgage indemnity scheme, which sees it guarantee to underwrite losses on new build properties in England to help first time buyers borrow up to 95% of the value of their home, will stimulate demand.

Barratt said the Government's housing strategy, which was published in November, was a welcome development for the industry. The housing market still faces fundamental problems as banks are demanding deposits of up to 20%, leaving many potential first time buyers unable to climb onto the property ladder.

However, in the first seven weeks of 2012, Barratt said private reservations increased by 21.8% on a year earlier, while cancellation rates have remained low at an average of 13.8%. Shares were up by more than 1% today.

Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers, said a combination of self-help initiatives, ultra low interest rates and government assistance has underwritten Barratt's recovery.

"A change in the product mix away from flats and towards houses continues to assist selling prices, whilst the use of cheaper land bought post the start of the credit crisis has reduced costs, boosting the group's profit margin," he said.