Average cost of a Barratt Developments home jumps sharply

Surprise, surprise – Owl

Jane Denton www.thisismoney.co.uk 

The average selling price of Barratt Developments homes going to private buyers has jumped by more than £15,000 in a year.

In a trading update, the biggest housebuilder in the country said its average selling price for private sales was around £325,000, against just over £310,000 last year.

Across all its operations, Barratt saw average selling prices rise from just over £280,000 in 2020 to £289,000 in the last 12 months.

The group, which will publish its full results in September, also upped its profit forecast for the year, claiming it looked set to be slightly better than expected. 

Barratt said it was on track to build around 20,000 new homes over the coming year.

During the pandemic, housebuilders have been able to take advantage of surging buyer demand, driven by the stamp duty holiday and relatively cheap mortgage deals.  

In the last few weeks, the housing market has showed signs it is cooling down, but figures from the Office for National Statistics this morning highlight that average prices have jumped by 10 per cent in the past year. 

Boss David Thomas,: ‘Whilst these are still uncertain times, we enter the new financial year in a strong position and remain focussed on our medium-term targets, including delivering 20,000 homes a year.’ 

Barratt said it was well-placed to perform strongly this year, with total forward sales including joint ventures of £3.47billion at 30 June.

The company said it expected pre-tax profit for the year ended 30 June to be slightly above analysts’ forecast range of £761million to £812million. It made a profit of £491.8million in 2019-2020 and £904.3million in 2018-2019.

The FTSE 100-listed company said it completed 17,243 homes in the year, compared with 12,604 a year earlier and 17,856 the year before that.

Barratt said it had built around 324 homes a week in the second half and had seen ‘build cost inflation’ of around 2 per cent, which it said was in line with its guidance. 

It added: ‘Given the continued strength of the market and constraints in parts of our supply chain, we are currently experiencing build cost inflation of 3% to 4%.’

In the past year, Barratt snapped up 18,067 plots of land for around £877million, up from 9,441 plots the year before. 

The group also said it expected to fork out £81million to fix or replace potentially flammable cladding on some of its high-rise sites. It said the costs set aside for such work may have to be increased in future.

The group said: ‘Whilst the charges in respect of cladding and external wall systems reflect our current best estimate of the extent and future costs of work required, as assessments and work progresses or if Government legislation and regulation further evolves, estimates may have to be updated.’

Shares in Barratt are currently up 0.23 per cent or 1.60p to 698.40p. A year ago the share price was 528.20p, meaning it has risen by around 32 per cent in the past year.

On the dividend front, Barratt said: ‘The Board continues to recognise the importance of dividends to all shareholders with a dividend policy based on a full year dividend cover of 2.5 times.’

William Ryder, an equity analyst at Hargreaves Lansdown, said: ‘Like its peers, Barratt is doing well out of a strong housing market. 

‘House prices are rising and completions have nearly recovered to pre-pandemic levels, which will both be good news to shareholders. 

‘However, Barratt is starting to see build costs rise, which is a common problem in the sector. Cost inflation ran at about 2% for the full year but is currently running at 3-4%. So far, it looks like house price increases are more than swallowing the extra expenses, but if house prices start to cool margins may come under pressure.

‘The burst of build cost inflation may be short lived – the result of pent up demand and pandemic disruption. 

‘If so, it shouldn’t be a problem. But if it’s sustained, or price increases become more widespread, that would be more concerning. The UK’s housing market has surprised us with its stubborn march upwards over the last year or so, but with uncertainty ahead, Barratt isn’t quite out of the woods just yet.’