Crisis puts a brake on home sales at Barratt

Barratt Developments today cast further gloom over the housing market when it warned the boom was firmly over.

The housebuilder said sales of new homes will have tumbled 17% in the six months to New Year's Eve, the first half of the new financial year, with price growth collapsing to nothing.

It blamed five interest rate rises since August last year and the loss of confidence among buyers since the crisis at Northern Rock and in the wider financial markets, which have made mortgage costs more expensive.

Chief executive Mark Clare said he expected profits to come in lower than last year but insisted Barratt's refusal to chase customers through discounting and the buy-to-let market meant margins were in line with previous guidance.

"Market conditions are more challenging," he said. "Consumer confidence and mortgage finance availability and pricing will be key to determining the success of the 2008 spring selling season."

Shares in Barratt rose 13½p to 518½p - well below the peak of 1289p in early February - as the firm stuck to its guns on full-year guidance.

The update followed a string of warnings by mortgage lenders and rival builders that the housing market is grinding to a halt. Building society Nationwide last week said price growth will slow from nearly 10% this year to nothing next year and called on the Bank of England to cut interest rates from 5.75% to 5%.

Property website Rightmove today said home values dropped in every part of the country this month apart from London. The average asking price fell 0.7% to £239,986.

Commercial director Miles Shipside said: "If you have to sell, then seriously consider dropping your price and taking an offer now rather than holding out. You could be offered even less in a few months. Prices are set to flatline."

Barratt said sales of new homes fell 14% in the 19 weeks to end-October and warned it will have sold just 8750 homes in the six months to New Year's Eve - down 17% on the 10,600 it sold in the same period last year.

The fall in the number of homes sold marked a significant increase on the 10% slide in the week after it emerged Northern Rock went cap in hand to the Bank of England for emergency funding in September in a sign conditions are getting worse.

Barratt also said selling prices rose just 2% in the 19 week period down from growth of 4% to 5% earlier in the year for new-build houses.

Clare said: "We are seeing a slightly lower rate of growth than previously. Where we were expecting 4% growth this time last year we are now seeing 2%. It is slower but the good news is that selling prices are holding at this time for new build. There is a lot of uncertainty about the second half but we expect flat prices for the financial year."

He expects the housing market to recover in due course with demand for new homes still outweighing supply: "Customer sentiment is being affected by interest rates but the tide is turning on that."