THE UK’s biggest housebuilder has been warned there is “no escaping” the impact interest rates and inflation has had on the housing market.

Barratt Developments has revealed early signs of a return of buyer activity as mortgage rates start to ease back, but said reservations remain under pressure.

The update on recent trading came as Barratt reported a 15.9 per cent rise in half-year profit before tax to £501.5 million for the six months to December 31, and notched up a 6.9% rise in total completions to 8,626 over the first half.

It said that if the recovery in demand continues, it expects to deliver total home completions including at sites across Scotland of between 16,500 to 17,000 for the year, down from 17,908 in the previous year.

The group, described as the largest by turnover, said it has seen a “modest uplift” in reservations this month, though its weekly net reservation rate remains 46% lower year-on-year since the start of January.

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It had seen reservations drop by 57% in the final months of 2022 after the mini-budget market turmoil sent interest rates on mortgages soaring higher amid political and economic uncertainty.

Douglas McLeod, managing director for Barratt Developments in Scotland, said the results represented a “a strong operating performance” made possible with a significant forward order book.

“However, the economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter," said Mr McLeod.

“Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.

“Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model.

“We are well-placed to navigate the challenges ahead and are focused on driving revenue whilst taking a decisive and disciplined approach to costs. As always, our priority is delivering excellent quality and service for our customers.”

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Forward sales did show the impact of recent woes in the sector, falling to 10,854 homes as at January 29, down from 15,736 a year earlier.

One analyst said that recruitment freezes and cutting back on new sites will help to mitigate the challenges “but materials and labour inflation are heading in one direction”.

Julie Palmer, partner at Begbies Traynor, said: “Barratt’s results show there’s no escaping the impact of soaring interest rates, rising inflation and a consumer confidence crisis on the housing market.

“The order book that insulated the housebuilder from these headwinds in the first half and helped it deliver a pre-tax profit of £501.5m is down nearly 30% versus a year ago."

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She added: "Wrap in property valuations dropping and you can see how homebuyers, who enjoyed more than a decade of rock-bottom rates, are pulling back from making long-term financial commitments on mortgages as the cost-of-living crisis bites.

“With the UK facing a long-term housing shortage, Barratt remains a fundamentally strong business. It has a healthy level of cash on the balance sheet, but this dipped below £1bn during the first half. Weekly reservation rates have also crashed in recent trading and forward sales are similarly down.”

She said that, taken together, “it’s not a pretty picture”.

It comes as mortgage costs have been gradually falling back. For the first time since the calamitous mini-budget last September under former Prime Minister Liz Truss, five-year fixed-rate mortgages are now available at below 4% once again.

HSBC UK announced on Tuesday that it has reduced a five-year fixed-rate mortgage deal for borrowers with a 40% deposit to 3.99% in a further sign the market is settling following turmoil in the autumn.

Shares in Barratt closed at 467.9p, up 7.8p, or 1.7%.