UK’s largest housebuilder Barratt on course for record profits

Barratt Developments

Barratt on course for record profits

Barratt Developments, the UK’s largest housebuilder is set to report record profits for the year ending 30 June.

The company predicted that pre-tax profits are expected to be about £910m which is an increase on the original City forecasts of £884m at the end of June while it is an increase from the £835.5m profits Barratt reported last year.

Barratt built 17,856 homes over the past year which was its highest number of builds for ten years since the recession hit the UK.

Shares in the company had risen 1.35 per cent to £5.84 by the market close following the news.

Why have they been successful?

New build properties are in demand with a housing market that has long had an imbalance between supply and demand. The need for more housing has been taken up by development companies like Barratt and with the support of the government through housing schemes, the property development market has thrived.

Low-interest rates, low unemployment and the government’s Help to Buy subsidy scheme have all played a part in increasing the number of people who can afford to buy a property which Barratt have taken advantage of.

Low-interest rates have enticed buyers to get their foot on the property ladder now, not waiting for the result of Brexit to see if house prices would lower instead and with more people in employment, there is more money coming in for potential homebuyers to make a move for themselves.

Most important for prospective homeowners and Barratt has been the Help to Buy scheme with Barratt relying on it for around 40% of its sales. The government scheme provides an equity loan to cover some of the cost of buying a new build.

In London, the loan can cover up to 40% of the cost of a property while it can be up to 20% elsewhere. This scheme also only requires a 5% cash deposit from buyers.

Generally speaking, the Help to Buy scheme has seen profits at all the major homebuilders increase sharply. It is particularly prevalent at Barratt though as they enjoyed an increase of eight-fold in that period, reporting profits of £110m in 2012 all the way up to the £910m they have recorded for the last year.

What next?

The Help to Buy scheme is currently under review and will be changing in 2021 where regional price caps will be introduced and the scheme will only be available to first-time buyers. The good news for Barratt is that first-time buyers make up the bulk of people using the scheme in the first place.

Barratt Developments clearly seem to know what they are doing in terms of how they should make their money which is worrying news for London.

Barratt is undertaking less new builds in London with property prices falling and transaction levels slowing down and looks to sell off its remaining London properties by the end of the year.

They are still waiting to see what the immediate effect of Brexit will be on the housing market and their new build plans but the suggestion is that new houses will still be needed and even if house prices fall, the rise in interest rates should balance out the effect.