Thrifty Loans

Britain’s biggest housebuilder, Barratt Developments, has warned that the problems of credit and the crisis at Northern Rock will have a detrimental effect on the demand for new homes, which could prices down.

Chief executive Mark Clare said: “Over the last week, since the Northern Rock crisis blew up, we have seen other mortgage lenders become much more cautious. There has been a massive shock to the market and, not surprisingly, lenders have rapidly tightened their lending criteria.” Long term Mr Clare believed that the UK housing market was in a strong position with demand exceeding supply, but there will be a short-term weakening in the market. “We are seeing mortgage providers offering lower multiples of people’s earnings, lower valuation multiples and demanding larger deposits. In a way, it has taken out some of the more extreme offerings we had been seeing in the market.”

After a normal slowdown in summer, September has seen an upturn in sales activity, but these are well below the figures for 2006. For Barratt, who too over Wilson Bowden earlier this year, forward sales at the end of June were 15% up at a record £1.23bn, and were at £1.72bn by mid-September.

Mr Clare noted that prime London locations were still in great demand, but apartment blocks in less desirable locations were not proving as popular.

He said that the effects of the Northern Rock crisis could be felt for a long time, but in the short-term there would be downward pressure on volumes and prices. Northern Rock, he said, would be lost, and it had been one of the most competitive lenders if the mortgage market. Eventually, others will come forward to take its place.

Barratt’s pre-tax profits were ahead of City forecasts; it increased its forecasts for savings from the Wilson Bowden deal; and it built up its landbank, spending £1bn on new plots.