Britain’s largest homebuilder, Barratt Developments, has reported a 45% surge in profits, as a result of the acute mismatch between housing demand and supply, as well as the government’s help to buy scheme.
Barratt said it had been “another year of excellent progress for the group” with pre-tax profits having risen to £566m, compared to £391m the previous year. Revenues were up by 19% to £3.8bn, in a year when Barratt completed the largest number of homes since 2008.
The company, which is the UK’s largest housebuilder by volume, said its average selling price had risen 8.7% to £262,500, largely driven by house-price inflation.
In a statement to investors, Barratt said the market for new homes remained strong, with demand continuing to exceed supply. The homebuilder has also been boosted by the greater availability of mortgage finance, as well as government support.
The government’s Help to Buy scheme, which was unveiled in the 2013 budget, allows homebuyers with just 5% of a property’s price to buy a newbuild home with the help of an interest-free loan or an existing home with a government-guaranteed mortgage. The scheme has been extended to 2020.
Very few first-time buyers have benefitted, partly because the scheme has helped to drive up prices. But the scheme has been a boon for housing companies, which have seen an upswing in profits against a backdrop of intense demand for housing and record-low interest rates.
The previous chief executive of Barratt Developments, Mark Clare, cashed in £11.8m worth of shares when he stepped down in July, after nine years at the top. He received £6.03m in pay and bonuses last year, thanks to a £4.1m payment from a long-term incentive scheme.
Shares in Barratt have risen by 80% over the last year and on Wednesday morning were changing hands at 646p, a rise of 1.4% on the day. Shareholders will get dividend of 10.3p per share, compared to 7.1p in 2014.
Richard Hunter, of Hargreaves Lansdown stockbrokers, said: “Housebuilders find themselves in an extremely sweet spot at present and Barratt is no exception. A combination of low interest rates, a general lack of new housing supply, rising house prices and increased mortgage availability all play into its hands.
Barratt reported that market fundamentals remained “very positive” and said it had seen a strong start to its latest financial year, with reservations up 15% on last year.
Barratt’s chairman, John Allan, said the company had completed its highest number of homes in seven years, “overcoming a number of well-publicised housing market challenges, particularly labour shortages”.
Completions rose 11% to 16,447 last year, although the company warned that a shortage of “high-quality skilled labour” was likely to continue to test the construction industry and limit its output.
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