Barratt lays sound foundations for recovery in housebuilding sector

The UK's biggest housebuilder made narrower losses for the six months to the end of 2009, plus a "solid start" to the spring selling season, but said the sector's recovery depends on mortgage availability.

New figures from the British Bankers' Association this week showed mortgage approvals in January slumped to an eight month low of 35,083 from a 26-month high of 45,650 in December, with activity held back by bad weather.

Barratt said half-year losses before tax were 178.4m, an improvement on the 594.6m losses a year earlier.

The group has also been shifting its focus away from

apartments to family homes, which it said helped to increase the average selling price by 3.5 per cent to 166,300 over the six months.

The builder expects the average selling price to increase by up to 10 per cent in the second half, which will add to "significant improvement" in the operating margin.

Over the past six weeks, the group has seen 0.55 private sales per active site, which was up 12.2 per cent on the rate during the first half of its financial year.

The group said forward sales of 847m have already reached 77 per cent of its full year requirement.

"We have seen a steady, solid start to the spring selling season," said Barratt corporate affairs director Peter Law.

He said the housebuilding sector needs to see more "good news" on mortgage finance after Spanish bank Santander yesterday revealed plans to lift the maximum loan-to-value on new-build mortgages in the UK from 80 per cent to 90 per cent.

That will make it easier for prospective buyers to obtain mortgages with smaller deposits.

"It's a decent step but we would need to see other lenders follow suit," said Mr Law.

Barratt has been buying land "where it can deliver attractive returns". Since mid-2009 when it re-entered the land market, it has agreed terms on more than 9,000 plots for 358m.

Mr Law said land purchases have been "slightly weighted to the south" as "the northern market tends to be more difficult".

Barratt said it plans to open two sites in Pickering, plus developments in Doncaster, Brough, Market Weighton, Leeds and Castleford.

"We are planning to open seven sites in Yorkshire over the next six months which is quite a boost to the region," said Mr Law. "We do see strong demand for houses in Yorkshire and that's helping."

Barratt said total completions for the six months to the end of 2009 were 5,053, about 27 per cent down on the 6,905 achieved a year earlier. It expects to complete 11,500 homes during the year, striking an "optimal balance between margin and volume".

A refinancing and rights issue last year drove net debt down to 605m from 1.42bn.

"A combination of self help and significant Bank of England stimulus appear to be bringing the 'good times' back into view for Barratt," said Hargreaves Lansdown analyst Keith Bowman.

"Barratt has been removed from the critical list, although like the wider UK economy, a full recovery cannot yet be called."

Stockbroker Credit Suisse trimmed its earnings forecast for Barratt by one per cent, with the decline in volume forecast being offset by a higher margin, and revised down its target price a fraction to 252p from 257p.

However, Credit Suisse said: "We see this as a resilient set of results and reiterate our outperform rating."