Housebuilding giant Barratt Developments has underlined the scale of the challenge facing the new UK Government as it aims to secure a huge increase in the number of new homes built in the country.

Barratt said the number of homes it expects to build could fall by up to 7% in the current year although new Chancellor Rachel Reeves has said the new government will act swiftly to address a chronic shortage of homes. This serves as a block on growth in the UK.

Promising to get Britain building again, Ms Reeves this week highlighted the need to simplify the planning system, which is seen as a major obstacle by housebuilders.

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While planning is a reserved matter, builders in Scotland have complained about the system for years. Barratt is a significant player in Scotland.

Barratt said reform of the planning system was key to tackling the undersupply of new homes but also underlined the significance of other factors that could weigh on activity for some time.

The company said completions in the current year are expected to fall to 13,000 to 13,500 annually, from 14,004 in the year to June 30.

The expected fall in completions reflects the impact of increases in mortgage rates that followed moves by the Bank of England to tackle the surge in inflation amid the recovery from the pandemic.

The bank raised the official rate from 0.1% in December 2021 to 5.25% in August 2023 under an initiative that triggered a downturn in the housebuilding market.

While the inflation rate has returned to target, hopes that the bank would cut interest rates quickly have been dashed.

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Barratt said: “The macro backdrop remains challenging, particularly demand sensitivity to current mortgage pricing and availability.”

The expected fall in completions also reflects the fact that Barratt cut land-buying activity from September 2022 amid the slowdown triggered by the Bank of England’s action.

Barratt said yesterday that total home completions fell by 18.6% in the year to June 30, from 17,206 in the year to June 2023. The total average selling price fell to £307,000 from £319,600.

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However, the company said it had delivered a strong operational performance in what has been another challenging year.

Noting it has cash in the bank, Barratt said it expects to increase spending on land and the number of sales outlets in the current year without specifying by how much.

Barratt is set to participate in a wave of consolidation that is sweeping the sector as builders look to add scale. It has agreed to a merger with Redrow, which is subject to approval by competition authorities. What such deals will mean for total sector activity levels is unclear.