Barratts profits increased by twofold amid signs that Help to Buy has stimulated the housing recovery over the past 18 months

The UKís no. 1 housebuilder, Barratt Developments, has reported a doubling in annual profits deepening the extent of the UKís housing market recovery, and pointing to the positives of the Coalitionís flagship Help to Buy scheme.

Barrattís revealed profits of £390.6m over the 12 months leading up to June 30th, and noted that the average selling price for properties had increased by 12.9% to £241600. The housing developer said it was selling around 7 houses per week, a trend consistent across the UKís regions, highlighting the profound impact of increased supply in the north.

Though typically a quiet time for sellers, the summer of 2013 saw buyers flocking to the market in order to take advantage of the governmentís Help to Buy scheme. Such high demand enabled housebuilders such as Barrats and Redrow to flourish, boosting their supply efforts, and yielding tangible results for both builder and buyer.

“Following the launch of Help to Buy, sales rates over the summer period last year were exceptionally strong. This year we have seen a return to more normal seasonal trends:î said Mark Clare, CEO of Barratts.

Expecting to finish the erection of 15700 by the end of 2014, which reflects a lower rate of construction than previous years, Barrats has conceded that the housing market will cool slightly as the splurge of buyers jumping on the Help to Buy scheme – designed to aid low-income individuals in their efforts to obtain a mortgage through the reduction of deposits ñ begins to diminish.

Mark Clare said: ëThis significant improvement in performance has been driven by the £3.8billion we have committed to land investment since mid-2009, together with the recovering market and improvements in design, quality and efficiency.

ëOur disciplined approach will support a further significant increase in performance this year and we are now targeting a return on capital of at least 25 per cent by 2017.í

Is London skewing housing data?

The London housing market continues to appear more heated than any other part of the country, with Barratts’ data showing 10 houses sold per week in the capital. As such it is natural to consider whether London, with its wealth of £1m+ properties, is belying the recovery being felt by other regions of the UK.

Independent stockbroker, Whitman Howard, said: “The pace of the improvement in the performance of the housebuilders will slow of course but there will be solid progress, we believe, over the next five years.”

“There may be periods of slow growth in that five year period but the trend is upwards… Donít confuse what is being seen in London to its 10m people and with houses over £1m with what is happening in the rest of the country where 50m people live and work and average sales prices are at £230,000.”

Dampening demand?

Collectively, House-builders have reported sizeable profits over the past 12 months, however despite their acceptance of a levelling out in construction, separate issues might have to be accounted for.

The turbulence of the London housing market, in particular, contributed to the enactment of stricter lending protocol by policymakers in April. This factor combined with the threat of an increase to interest rates will organically reduce demand, with many savers already preparing for this eventuality.

The prospect of coping with costlier mortgage repayments is all too distasteful for the majority of low-income individuals, whilst the notion of people taking out loans they cannot viably afford is equally objectionable to lenders.

As such, demand will most probably dampen over the next year, and it is down to policymakers to continue their efforts of balancing the UKís volatile housing market.

This is reflected in Barrattís condensed share price for the past six months, having fallen by 18% compared the FTSEís overall rise of 2%. As such, the future looks uncertain for house-builders; however, Help to Buy, which has been retained til at least 2020, certainly provided the impetus in 2013, needed by many low income families across the UK to take their first steps onto the property ladder.

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