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British homes to stay affordable despite rising rates, Barratt CEO says

british homes

British homes will likely remain affordable and demand will stay strong despite a climate of rising interest rates, the head of the UK’s largest homebuilder Barratt (BDEV.L) said on Wednesday.

His comment comes amid signs of a possible lull in a housing market boom amid potential rises in mortgage rates and a growing cost-of-living squeeze, although many London-listed homebuilders have forecast robust demand persisting in the medium term.

Last week, the Bank of England raised interest rates for the second time in two months, with nearly half of its policymakers asking for a bigger rise to contain rampant price pressures, a policy move that could indirectly weaken demand in the housing market.

But Barratt Chief Executive Officer David Thomas said that increased levels of household savings during the pandemic had helped consumers reassess their options, leading to higher transaction levels, and purchasing power has stayed strong.

“Affordability for the consumer is in a relatively good place and that is because interest rates have been and continue to be so low,” he told Reuters. “So once we understand that interest rates are rising – and we saw a base rate increase last week … affordability remains more than historic benchmarks, but we will clearly keep that under review.”

Barratt shares gained up to 4 per cent in morning trade after it forecast buildingup to 18,250 homes in the 2022 fiscal year, 250 more than its previous outlook, which would also cross pre-pandemic volume levels.

The homebuilder posted about a 1 per cent rise in half-yearly pretax profit at 432.6 million pounds ($586.30 million) and also announced an interim dividend of 11.2 pence a share, up from 7.5 pence a year earlier.

“Barratt continues its impeccable delivery with strong H1 margins, a FY volume guidance raise and the introduction of progressively lower dividend cover,” analysts at Deutsche Bank said in a note.

The FTSE 100 firm said total forward sales as of Jan. 30 were 4.11 billion pounds, compared with 3.43 billion pounds a year earlier.

Barratt’s smaller rivals, Persimmon (PSN.L) and Taylor Wimpey (TW.L), last month forecast strong demand to continue, while midsized players Bellway (BWY.L) and Vistry (VTYV.L) reported healthy trading on robust demand. Countryside Properties (CSPC.L) unexpectedly reported a weak quarter.

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