Barratt battles rise in building costs as soaring energy prices and inflation take their toll

Britain’s biggest housebuilder said build cost increases have escalated to between 9% and 10%, up from around 6% over the year to June 30.

The group said the surge reflects “the impacts of escalating energy costs and fuel cost inflation in relation to transportation”.

It recently announced a £1,000 bonus for 6,000 staff below senior management level as it looks to help workers with the cost-of-living crisis.

The payment will be spread over six months, with the first being made in July.

It comes on top of a move announced earlier this year to bring forward a 5% pay rise from July to April 1 to help staff with soaring costs.

Despite the inflation pressures, the group said full-year underlying profits for the year to June 30 will be slightly better than expected as its house completions bounced back to levels seen before the coronavirus pandemic struck.

The group now expects pre-tax profits of between £1.05 billion and £1.06 billion for the year to June 30, which is slightly ahead of forecasts for £1.048 billion and up from £919.7 million posted in 2020-21.

Home completions returned to pre-pandemic levels, with 17,908 notched up over the year against 17,243 in 2020-21.

Average private selling prices rose to £341,000 from £325,500 the previous year and the group said it saw annual house price inflation of around 8% on private reservations.

But it acknowledged clouds on the horizon for the year ahead.

“Looking forward, we recognise that significant macroeconomic uncertainties remain, most notably around rising inflation and interest rates and their consequent impacts on UK economic growth, employment, as well as consumer confidence and spending,” it said.

It still expects to grow house sales by between 3% and 5% in the year to next June, assuming no major supply chain disruption or worsening of market conditions.

Chief executive David Thomas said: “While there are clearly macroeconomic uncertainties ahead, the housing market remains robust, our forward order book is strong and we have the resilience and flexibility to react to changes in the operating environment.”

Richard Hunter, Head of Markets at interactive investor, commented: “Barratts has provided further proof, if it were needed, of the growing chasm between the actual trading performances and the depressed share price performances within the sector.

"Completions have risen by 3.9% compared to last year and are now in excess of pre-pandemic levels. Total forward sales remain robust and, despite having dropped by 5.3% in number, they have increased by 4.3% in value. This has partly been enabled by the average selling price of properties, which overall has risen by 3.8% to stand at £300000.

"Even after a spend of over £1 billion on land and the £250 million acquisition of Gladman Developments, the company expects to end the year with net cash of £1.1 billion, giving it ample flexibility either for further purchases or indeed to review its capital return policy. At present, the dividend yield of 7.1% is punchy indeed against the current interest rate backdrop, and the group will retain a similar level of payment provided that its dividend cover hurdle is met, in another sign of financial prudence."

"With an undemanding valuation by historical standards and with prospects firmly intact, the market consensus of the shares as a strong buy reflects not only investor confidence but also makes Barratts the preferred play in the sector at present.”