Barratt hails the success of lending schemes

The group, Britain’s biggest housebuilder by volume, said the Government’s NewBuy mortgage indemnity scheme backed 7.7 per cent of its private reservations in the six months to the end of December.

NewBuy, where builders and the State underwrite mortgages on new properties, should rise to 10-15 per cent of its private reservations in its second half.

Shared equity schemes such as FirstBuy also accounted for 16.9 per cent of its sales during the period. Of these, three quarters were Government-backed schemes.

“Government support for the UK housebuilding industry remains strong with a range of initiatives in place designed to support house purchases and stimulate growth,” said the company.

The group also echoed comments from its peers Persimmon and Taylor Wimpey about the positive impact of the Treasury and Bank of England’s Funding for Lending Scheme (FLS) on the housing market.

“Whilst the availability of mortgage finance remains the key constraint to industry growth, we have started to see some improvements coming through,” it said.

“Expectations are that mortgage lending should increase in 2013, supported by the Bank of England’s Funding for Lending Scheme.”

The FLS offers banks and building societies cheaper funding if they boost lending to companies and households. Launched in August, it is backed by the Government’s ability to borrow cheaply on the international money markets.

Barratt said first-half pre-tax profits should be around £45m, more than double a year earlier, despite revenues of £950m being slightly down on the £952.8m a year earlier.

Total completions of 5,085 were down on 5,117 a year earlier.

The group expects its operating margin to increase to about 8.4 per cent from 6.4 per cent in 2012.

Despite the relatively subdued housing market, housebuilders have been reporting strong earnings growth after picking up land cheaply during the downturn. Combined with a focus on building more family homes instead of flats, plus the falling cost of labour, this has boosted margins.

Barratt hailed a “significant increase in approvals to acquire higher margin land”. It committed to buying £453m of land during the period – some 9,320 plots on 67 sites.

“We have been investing for the future, successfully securing higher margin land both in the South East and across the rest of the country that will drive further profit growth,” said chief executive Mark Clare.

Net debt was £332m at the end of December, from £542.2m in 2011.

Barratt had £536.5m of private forward sales at the year-end, up 35.5 per cent on the prior year.

Brokerage Citi said fundamentals for UK housebuilders for 2013 continue to be supportive, with relatively stable underlying house prices and completions moving steadily higher, meaning margins should continue to improve.

“We expect this to translate into good earnings growth and steady growth in net assets. The sector has enjoyed two years of share price outperformance, with a very strong performance in 2012,” it said in a note.

Analysts at Bank of America Merrill Lynch also said it sees a number of positive trends for UK housebuilders that should drive demand and continue to feed the upgrade cycle.

“This, we believe, will drive share prices higher,” said BofA Merrill Lynch in a sector review.