Barratt's record forward sales book quells interest rate hike fears UPDATE

Barratt's record forward sales book quells interest rate hike fears UPDATE

	Published : Fri, 12 Jan 2007 10:16 By : Agencies Print this Story

(adds Mark Clare quotes)

LONDON (AFX) - The UK's second largest housebuilder, Barratt Developments PLC, has moved to quell fears yesterday's shock interest rate rise will lead to a sharp slowdown in the UK housing market.

Incoming chief executive Mark Clare told reporters this morning that two factors made him doubt that the quarter point rise to 5.25 pct would destabilise the market.

First, he said, the two rises last year had not done so. Second, Barratt is currently sitting on its highest ever forward order book.

Clare conceded the rate hike had been a 'shock' but stressed further rate rises had been anticipated in the sector.

'Yesterday the shock was simply that it was in January rather than February,' he said. 'All we can do is to look at what's happened with the last two rate rises: the expectation for both was that there'd be some effect but that just hasn't happened. We have seen reservations just as strong.'

Clare pointed to a reduced level of customer incentives and 47 pct forward sales this year as an indication consumer confidence had not been shattered by last year's rate hikes.

'In the first half we have had very high visitor numbers and very high conversion rates of those visitors which means our forward order book is at its highest level,' he said. 'That really reflects the strength of the market that we have seen over the last six months.'

He suggested the ordinary house buyer is not as worried about rate rises as the City and the media.

'Clearly while ourselves, the media and financial markets are very focused on it the question is whether a quarter percent rise materially changes the minds of people who are thinking of buying,' Clare said.

'You have got to remember the market fundamentals here -- we are building as fast as we can as an industry but far less houses than there is demand.

'I'm not sure that a quarter percent change in interest rates is going to change that. If there was a stronger feeling that the economy was going to slow down there'd be more unemployment and more businesses going to the wall, and then I think you'd see a material change.

'It is consumer confidence that could potentially cause a slowdown in the market and that's clearly made up of a number of things,' he said in a conference call.

'Interest rates are part of it, but unemployment is another.'

Clare predicted house price inflation this year will fall close to wage inflation, about 3-4 pct.

One area that could suffer is the buy-to-let market, which may see investors moving out in droves. Clare said that could be a short term 'cooling' but backed the market to come through.

'The challenge with the buy-to-let market is whether there is still the demand for rented property because people can't afford to buy,' he said.

'If so then what we will see is perhaps a cooling but I'd still expect the market to continue.'

Barratt itself sells to professional investors and requires a 10 pct non-refundable deposit.

'Professional investors have clearly seen very high returns in the past,' Clare said. 'We may see them cool a little but I'm not sure we'll see them close down. In any event we have a very strong forward sales position ourselves.'

Barratt's interim trading update today saw completions grow 2.9 pct to 7,206 at an average selling price of 165,000 stg, compared to 162,900 stg last year.

Private completions rose 4 pct to 5,791 at an average price of 184,200 stg, while social housing completions fell 1.3 pct to 1,415 at an average price of 86,600 stg, down 2 pct.

Barratt forecast a 'robust' operating margin and pretax profits in line with expectations. Its landbank was up 11.9 pct to 70,500 plots, or 4.8 years' supply.

Barratt also has a record 47 pct forward sales position at 1.03 bln stg compared to 700 mln stg last year. With completions to date and forward sales expected in the second half, Barratt has now secured more than 70 pct of this year's expected volumes.

The investment in land has seen gearing grow to 17 pct, with half-year borrowings at 224 mln stg.

The company said it expects the fundamentals of the housing market to remain sound and to continue to perform satisfactorily over the coming six months.

However, it added that with the key spring selling period still ahead, it was 'clearly too early to be certain of market trends for the rest of the year'.

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