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Barratt Expects Annual Profit To Beat Market Forecasts

Despite the rather gloomy outlook from some industry watchers a short time ago, housebuilder Barratt Developments PLC is now expected to beat initial market forecasts. Having completed a record number of new home builds and significantly improved its margins, the organisation’s annual profit is set to comfortably beat expectations.

Barratt has published a new trading update for the year running up to June 30, in which it revealed that a record 17,856 homes have been constructed during this year. That’s up slightly from 17,579 last year, including an impressive 17,111 wholly-owned completions. This represented a 2.6% increase year on year, with joint venture completions down 17.1% to 745 homes.

Supported by the decision to purchase sites with higher margins, the company’s operating margin increased to 18.9% this year from a prior 17.7%. Barratt’s performance has also been bolstered by the reversal of inventory impairment provisions and the disposal of legacy commercial assets.

In a pre-Brexit era of uncertainty where the British housing market is all over the place, Barratt continues to perform above and beyond most realistic expectations.

Declining Average Home Prices

Completions may have hit a new record high, but the average selling price for a new property for the year ending June 30 came out at £274,000 – a sizeable decline from the previous average of £288,900. According to Barratt, this is the result of a changing the mix of completions.

For example, private home completions grew 0.7% to 13,533, while affordable home completions increased 10.4% to 3,578. In the affordable homes bracket, average prices increased from £123,700 to £131,000, but the average selling price of a private home fell from £328,000 to £312,000.

On the whole, the company stated that its joint ventures have delivered a higher overall profit than expected of £35 million – a significant improvement on last year’s £18.6 million. This was due largely to sizable gains on land sales.

Total Profits Better Than Expected

In terms of total pre-tax profits, Barratt now expects to comfortably exceed the estimates of analysts. The company now expects a total profit of £910 million, up from 2018’s £835 million.

Like many major housing companies, Barratt has responded to the Central London housing market slowdown by focusing more heavily on developments further afield. The company now has 18 private properties scheduled for completion within its Central London portfolio – a far cry from last year’s 145.

Going forwards, Barratt intends to continue focusing on margin improvements.

“Whilst there remains some economic and political uncertainty, the group is in a strong position,” Barratt said.

“We have a substantial net cash balance, a well-capitalised balance sheet, a healthy forward sales position, a continued focus on delivery of operational improvements across our business and an ongoing commitment to deliver the highest quality homes across the country,”

“We believe that this gives us the resilience and flexibility to react to potential changes in the operating environment in fiscal year 2020 and beyond.”

Despite its declaration of better-than-expected profits for 2019, the positive news didn’t have any real impact on Barratt’s share prices. Shares traded at 576.2p during morning trading – no real difference than the day before.

Nevertheless, experts at Peel Hunt spoke with great optimism regarding Barratt’s current performance and future outlook, increasing its target price to 630p.

“The group’s margin story has been a key differentiator over the last 6-12 months especially as others have been hit by quality and leasehold concerns,” the broker said.

“While a chunk of the value gap has now been closed, Barratt remains a well-run business.”

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Mortgages

What are ‘Green Mortgages’?

In an age where everything is slowly but surely going green, the existence of the ‘green’ mortgage comes as no real surprise. However, comparatively few current and prospective homeowners are familiar with what the term refers to.

Below, you’ll five helpful answers to some of the most important questions on the subject of green mortgages:

What is a green mortgage?

In the simplest terms, green mortgages are financial products from banks and lenders, which enable buyers and lenders to access preferential rates by demonstrating that the property they intend to purchase is environmentally friendly. Or at least, complies with certain specified environmental standards. It could be that the home already has an outstanding sustainability rating, or that the borrower intends to invest heavily in the property’s environmental performance.  In both instances, the borrower may be considered eligible for a green mortgage.

Essentially, green mortgages target environmentally friendly buildings and encourage buyers to invest in green properties. If the property is deemed suitable, the lender may choose to provide a mortgage with a lower rate of interest, or with some kind of discount on the usual overall cost of the loan. The concept of the green mortgage was only introduced relatively recently, though has already attracted the attention of some of the biggest banks and lenders in the United Kingdom.

Who defines ‘green’ and why are the banks interested?

It’s technically up to each individual lender to determine the extent to which they consider any property ‘green’ or otherwise. Lenders outline their own criteria and environmental standards the property must comply with, in order for the borrower to access any subsequent incentives accordingly.

For the borrower, it all adds up to potentially significant savings on their long-term mortgage obligations. As for what’s in it for the lender, it all comes down to reducing risk. Lower-risk loans almost always attach lower interest rates and borrowing costs – green mortgages being considered safer than some conventional mortgages. Work out the costs of a mortgage using our Mortgage calculator UK

This is partly due to the fact that environmentally friendly buildings usually cost less to run and maintain. In turn, the mortgage buyer has reduced outgoings and more money available to keep on top of their mortgage payments. In addition, the market value of any environmentally friendly property is typically significantly higher than that of a comparable property with a lower eco rating. Statistically, it is likely that those who invest in green properties will own homes of a higher value at the end of the loan term.

Many lenders see both of the above as added insurance policies for the green loans they provide, which is why they are willing to offer them at a lower overall cost.

Will green mortgages really make a difference?

For the time-being, the whole green mortgage is still in its infancy. Nevertheless, it is expected that the new approach and policy conducted by banks across Europe will indeed make a difference. It’s estimated that the overwhelming majority of buildings we will be using in the year 2050 are already built. A figure that underpins the importance of both constructing new energy efficient buildings and improving the eco friendliness of existing buildings. To date, around 20 of the biggest banks in the European Union have demonstrated an active interest in the new green mortgage initiative. The idea being that the scheme encourages parties on both sides of the deal to favour eco friendly homes. The potential for the project is huge, though is not expected to hit its stride for another couple of years at least.

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Other Finance News

How The Modern Workplace Has Transformed Itself

It’s easy to take the various conveniences and freedoms of the modern workplace for granted. Particularly if you’ve only recently joined the workforce, it can be hard to imagine the workplace of yesteryear.

But what have been the biggest changes to the modern workplace over the past 20 years or so? Prior to the turn of the new millennium, what kinds of conveniences we now take for granted were predominantly out of the equation? 

Working Remotely

For one thing, remote working – aka the virtual workplace – was practically unheard of just a few decades ago. Today, it’s estimated that around 30% of the entire work force has worked remotely at some point or another. Modern technology has transformed every device with a working Internet connection into a fully functional office suite.

Frequent Job Changes

The vast majority of employees are always on the lookout for a bigger and better deal. In times gone by, it was the norm for people to stay with the same company for 30 or 40 years, before leaving with a gold-plated watch and a decent pension.  These days, it’s the norm for people to stick with the company for no more than five years, before searching for greener pastures.

Equality and Diversity

Particularly in the United Kingdom and the United States, there’s been a gradual yet radical adoption of workplace equality and diversity policies. Rather than simply encouraging workplace diversity, official government policy has made it a legal requirement to champion diversity and equal opportunities. Discrimination in any form is no longer tolerated and is considered abhorrent.

Flexible Dress Codes

Some of the world’s biggest and most successful companies have acknowledged the fact that you don’t necessarily have to dress in a stiff power-suit to do a good job. Enormous enterprises like Google encourage their workforce to express their personalities and individuality, wearing pretty much anything they want to work.  Piercings, tattoos, gravity-defying hairstyles – all part and parcel of the modern office experience.

Employee Input

It may be hard to believe, that there was once a time when the prospect of any lower-level member of the workforce communicating directly with ‘the boss’ would have be out of the question. Particularly if said employee wanted to make a rather outlandish suggestion, or bring up a grievance of some kind. Today, employees at all levels are actively encouraged to share their thoughts and opinions with their superiors. Communication in general in the average workplace has transformed beyond recognition over recent years.

Transparency

No longer can an organisation expect to get away with operating in a shroud of secrecy. Company policies, salaries, benefits, promotion opportunities, organisational performance – extensive efforts are made to keep all employees in the loop. The idea being that by ensuring everyone is on the same page, everyone takes equal pride in their work and performs better accordingly. 

Availability

Even as recently as the mid-1990s, it was comparatively rare for anyone other than an executive to carry a mobile phone. Today, it’s almost unheard of for anyone not to carry a mobile phone. The result of which is the near-constant availability of workers at all levels on a 24/7 basis. The ability to contact any person from any place in the world at any time has radically transformed the way the world does business.

General Workplace Culture

Last but not least, the culture of the modern workplace embraces motivation, satisfaction and enjoyment at an unprecedented level. Businesses worldwide are acknowledging the fact that when employees are happy to come to work, they perform better. Flexible working hours, a relaxed working environment, stocked kitchens, pool tables, coffee machines and so on – all having an enormous impact on employee motivation and retention. It’s taken some time, but it’s now acknowledged that the most effective way to motivate workers is to create an enjoyable working environment – not simply force them to do the job.

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Mortgages

Interest Only Mortgage: What Are My Options?

Interest-only mortgages were once popular among home buyers across the UK.  Today, a growing number of major banks and lenders are rapidly phasing interest-only mortgages out of the picture. Primarily due to a growing lack of interest among borrowers.

With an interest-only mortgage, the subsequent monthly repayments cover only the interest on the loan, but not the capital. The advantage being that the average monthly repayments on an interest-only mortgage can be extremely low.  However, you’re still liable to pay back the full amount you owe on your home at the end of the term, in one lump sum.

For obvious reasons, this can result in issues for those who simply do not have the funds available to pay off their loans.

More often than not, borrowers taking out interest-only mortgages use savings systems like ISAs to amass the money they need over time. The flexibility of an interest-only mortgage can be great, but there are no guarantees the borrower will have enough money available at the end of the loan term.

There are currently around 1.6 million outstanding interest-only mortgages in the UK, and repayment difficulties are surprisingly common. Work out the costs of a mortgage using our UK mortgage calculator

Handling Repayment Difficulties

If you simply do not have enough money saved to pay off your mortgage at the end of the term, it’s important that you consider your available options at the earliest possible stage. The earlier you take action, the easier it becomes to avoid outright disaster.

There are four basic options available in such circumstances, as outlined below:

1. Take out a new interest-only deal

If you are deemed eligible, you may be able to enter into a new interest-only mortgage. This will depend on the value of your property, your current financial position and your age. It can be a challenging and potentially costly process, but could also prevent your home being repossessed. Speak to your lender or independent broker at the earliest possible stage.

2. Switch to a repayment deal

Again, depending on your personal circumstances and value of your property, it may be possible to switch to a more conventional mortgage deal. Rather than paying off the money you owe in one lump sum, your lender may be willing to organise a more gradual repayment deal. This is one of the most popular options among struggling borrowers, as it provides the opportunity to maintain ownership of their property and repay their debts over several years. Interest rates and additional borrowing costs will apply.

3. Sell your home

Another viable option is to sell your home, repay the money you owe and hold on to the rest of the proceeds yourself. This can be particularly useful if the value of your home now significantly exceeds its original purchase price. However, there’s every possibility the value of your home will not cover the amount you owe. Again, it’s important to seek expert advice at the earliest possible stage, if considering this option.

4. Take out an equity release plan

Last but not least, equity release plans provide homeowners with the opportunity to tap into the capital tied up in their homes. You release some or all of the value tied in your home, repay your interest-only mortgage debt and make subsequent ‘rent’ payments to the new lender. Depending on the value of your home and how much of it you own at the time, you may be able to repay your interest-only mortgage and continue to live in the property rent-free. As equity release is by no means suitable for all homeowners, it’s important to seek independent financial advice before making your final decision.

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