BARRATT Developments boss Mark Clare is urging the UK Government to include the housing sector in the new “funding for lending” scheme that offers cheap money to the banks.
While housebuilders have improved their balance sheets and margins through cost-cutting and by developing low cost land, he believes the sector will not fully recover until the flow of lending improves.
The industry is being assisted by a number of government initiatives in Scotland and England to help compensate for the shortage in affordable mortgages.
But Clare is concerned that they do not increase the total lending available. The Treasury unveiled the funding for lending initiative to help provide low-cost money to the banks so that they can overcome this shortfall.
“I have lobbied hard for government to use this for housing and not just for small businesses,” said Clare. “Until there is more lending there will be no improvement in demand.”
Clare said there were still too few first-time buyers able to get mortgages. “We have given the markets a three- year view. Profits are growing, but are well short of their peak, and we have to see volumes growing.”
Barratt is among a number of housebuilders that have reported a recovery in profits, but mostly from a lower base. Cala moved into higher-value properties which are less exposed to the mortgage squeeze.
This week Galliford Try and Redrow will report increased profitability after focusing on the more buoyant market in the south-east of England.
A sharp improvement in margins and productivity at Galliford has allowed it to beat its three-year profit target of £60 million, which was set in 2009.
The City’s consensus forecast for this week’s full-year results is for a pre-tax profit of £63.5m, up from £35.1m.
“Not only has the profit delivered but the balance sheet is in net cash – compared with original estimates closer to £100m debt – and income is substantially higher”, said joint house broker Peel Hunt.
Another Galliford-watcher said: “The company has benefited from its superior geographical footprint in these tough times for the housing industry, with a market bias to the more prosperous south-east of England.”
Edinburgh-based civil engineering business Morrison Construction – which Galliford bought in 2006 – is expected to have had a less eye-catching year, but group chief executive Greg Fitzgerald is expected to stress the division’s resilience in difficult markets as the UK government cuts back building programmes. In 2006, Galliford won the contract to clear the site for London’s Olympic stadium.
Rival housebuilder Redrow is this week tipped to unveil a 45 per cent jump in pre-tax profits to £36.9m for the year to 30 June. But the attention of Redrow’s shareholders is likely to be diverted by questions over a preliminary offer from its founder, Steve Morgan, who wants to take the group private again.
Morgan founded Redrow in 1974 and seized control again as executive chairman in 2009 following a boardroom coup. Redrow’s shares edged up 0.9p on Friday to close at 151.3p.