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January 16, 2013 9:23 am
Barratt Developments is buying land at its fastest rate since 2009 in the belief that the housing market is starting to improve despite the gloomy economic outlook.
With the Council of Mortgage Lenders reporting the number of loans to first-time buyers up 24 per cent in November compared with a year ago, Mark Clare, chief executive, said there were signs that government measures to improve mortgage availability were working.
About 20 per cent of the company’s sales are supported by government schemes to boost the housing market, particularly the NewBuy initiative, which provides a guarantee to banks that offer 95 per cent mortgages. But housebuilders, including Barratt and Taylor Wimpey, say they are also benefiting from the Bank of England’s Funding for Lending Scheme, which helps banks offer loans at more affordable rates.
“Obviously we have whined on about mortgage availability for a long time,” said Mr Clare. “Some people have tried to suggest I’ve seen a turn in the [housing] market. I’m not sure we are there yet but there is evidence it has improved.”
The group, which will also receive £34m in low-cost loans as a result of the government’s Get Britain Building Scheme, designed to kick-start stalled developments, is planning to buy 15,000 plots this year – the most since it re-entered the land purchasing market in 2009.
Although average prices for land plots are about £45,000 nationwide, in London prices can be “astronomical”, especially for land that requires less work, Mr Clare said. Nevertheless, with many builders squeezed out during the recession, Mr Clare said there were few people with the cash and skills to buy and the London market represented “a big opportunity”.
The company’s focus on London helped to drive average selling prices 2.1 per cent higher to £185,000 in the six months to December 31, encouraging Barratt to forecast a more than doubling of interim pre-tax profit to £45m, up from £21.6m in the same period a year ago.
Operating margin for the half is expected to be 8.4 per cent – up from 6.4 per cent a year ago – as a result of sales on land bought cheaply in the wake of the financial crisis.
Despite this, home completions in the six months to December 31 fell to 5,085 – down from 5,117 in the same period a year ago – and revenues were relatively flat at £950m.
Analysts at Panmure Gordon said: “Barratt has significantly strengthened its balance sheet over the past few years and the group reported net debt of £332m at the half – more than £200m lower year-on-year. The group has also reiterated its belief that it will be completely debt-free by June 2015.”
Barratt shares fell 1.5 per cent to 223p, giving the company a market capitalisation of £2.2bn. The group reinstated its dividend.
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