Barratt offers extra sales incentives as buyer drought goes on

By Cliff Feltham
Thursday, 11 September 2008

The housebuilder Barratt is to offer an unprecedented level of incentives to help people buy homes after conceding it does not have a clue what is going to happen to prices.

The country's second-largest builder axed its final dividend yesterday after a 67 per cent plunge to £137m in pre-tax profits for the year just ended. It also slashed the value of its building land by £208m. One leading stockbroker said that might not be enough and forecast that a further £400m could be written off over the next two years.

Barratt's chief executive, Mark Clare, said the company was in the same boat as other builders who were also making large provisions based on "assumptions" about the future.

"There is very little visibility about what is going to happen and we are all making assumptions based on much the same information about what is likely to happen over the next 12 months or so," Mr Clare said.

"But it is a very limited extrapolation. There could be another major issue with mortgage lenders which could change assumptions – it is all very uncertain."

Barratt is promoting measures aimed at helping buyers. As well as an existing part-exchange deal, it is offering to pay stamp duty on properties worth up to £500,000 – saving the buyer up to £15,000 – and protecting others from house-price falls of up to 15 per cent if they sell within the next three years.

However, the deals are only available until the end of the year and are on selected properties likely to exclude most developments in London and the South-east. The part-exchange offer is limited to £250,000 on existing properties while the three-year price guarantee is limited to properties worth £300,000.

Mr Clare admitted: "Pricing continues to be under pressure with higher incentive levels being required. There is little prospect for any material improvement in trading conditions until mortgage finance and customer confidence return."

He denied the firm was exposed to falling values of second-hand houses acquired as part-exchange deals, saying they were sold on quickly. "Our balance sheet exposure is quite low," he said.

Barratt, which bought rival Wilson Bowden at the top of the market last year for £2.2bn, said sales on a like-for-like basis fell 14 per cent. Of the year's completions, 14,803 were private sales – up 3.3 per cent – while the balance of 3,785 were social housing. They were up a third. The overall selling price increased 6 per cent to £183,100, reflecting more developments within up-market areas of the capital. The firm has cut 1,200 jobs and reduced the number of divisions from 44 to 26.

Mark Hughes, an analyst at broker Panmure Gordon, said Barratt was still suffering pricing pressure and warned of further write-offs against the value of its land: £200m this year and £200m in 2010 were likely, he said.