Mortgage News Barratt Axes 1000 Jobs As Mortgage Crisis Freezes Market
04 July 2008 / by Rachael Stiles
Homebuilder Barratt Developments has announced that it will make 1,000 of its employees redundant as part of its plan to cut costs and restructure the business in order to weather the credit crisis.
The mortgage market, where homeowners are struggling to keep up with rising mortgage payments and falling into negative equity as house prices fall, is causing a dramatic slowdown in house sales, including a 60 per cent dive in new builds since this time last year.
Following its takeover of rival Wilson Bowden last year which cost Barratt £2.2billion, it is now struggling with £1.8billion of debt. Barratt’s debt, combined with the slowdown in sales and new starts, has caused its shares to plummet 95 per cent, 84 per cent in the last two months alone.
House prices are predicted to fall by as much as 15 per cent in the next year, and Barratt says that cutting 15 per cent of its workforce is a necessity in light of the changing market conditions.
In response to a 45 per cent slump in reservations and a 33 per cent fall in completions, a total of 2,300 jobs have been lost in the construction industry in the space of two days.
On Wednesday, Taylor Wimpey, the UK’s largest housebuilder, said that it was cutting 900 jobs and closing a third of its regional offices, and Galliford Try, a construction group, also said that it would be letting 256 employees go in response to a weaker market.
Meanwhile, Taylor Wimpey has been trying desperately to raise capital, plans of which collapsed on Tuesday when one of the hedge funds investing in the group pulled out the £100million of support it had previously promised.
The homebuilding market is suffering as buy to let landlords pull out of the market and first time buyers are forced out of it by large deposits, higher rates and tighter lending criteria. This shift in the market has meant that many homebuilders have been forced to abandon projects mid-build when funds dry up and houses remain unsold.
In an attempt to shift properties, Barratt is offering to pay the stamp duty, to take £1,000 off the price of a property, and help with mortgage payments. Also, in conjunction with Head Start, it is offering a property in the Midlands – normally priced at £140,750 – for £113,656.
Head Start allows homebuyers to purchase 100 per cent of the property for just 85 per cent of the price. Barratt even pays the five per cent deposit on the property which means that this apartment is available to people who have no savings or equity.
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