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Barratt Developments, Britain’s biggest housebuilder, reported a predictably rotten set of results today for the year to June. Thanks to the tanking housing market, Barratt saw pre-tax profits slide 67% to £137m (down from £424m last year) as completed sales fell by 14%. It’s also had to write off another £208m from the value of its land bank. As a result it’s been forced to scrap its final dividend – and with margins expected to deteriorate even further in 2009, there was very little for investors to shout about.

The answer, Barratt believes, is to provide more incentives for people to buy houses (a painful decision to make when you’re £1.7bn in debt and have just suffered a huge profit slump). It’s offering to pay buyers’ stamp duty on any purchase up to £500,000, which could mean it ends up shelling out £15,000 per deal. It’s also offering a part-exchange service – so it will buy your old house off you for ‘fair market value’, to make the moving process easier. And it’s even offering a three-year ‘price promise’ to protect buyers who are worried about their new property falling in value.

Barratt seemingly has no confidence whatsoever in the Government’s latest moves to kick-start the market. CEO Mark Clare said today that private sales in the last four weeks have been 30% lower than last year, and criticised the new £175,000 stamp duty ceiling as ‘well below the value of many modern homes’ (Barratt's average sale price is about £183,000, for example). So the housebuilder has clearly decided that if it wants to get people buying again, it needs to take matters into its own hands.

Just about the only good news for shareholders was that Barratt finally seems to have sorted its finances out. It’s managed to persuade its banks to refinance its £1.7bn debt package, which will cost more money but reduce its financial pressures (by relaxing some of the covenants). Its average sale price has also climbed slightly, showing that it’s been finding slightly more upmarket locations for its developments. And it has managed to reduce its cost line, albeit by the painful process of shedding 1,200 jobs at a cost of £16m. 

But generally speaking, the short-term prognosis for Barratt looks pretty grim: according to Clare, ‘there is little prospect for any material improvement in trading conditions until mortgage finance and customer confidence return’. All he can do now is cross his fingers and hope that these latest incentives get things moving again...

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