Housebuilder Barratt Developments has agreed a £2.5bn deal to buy rival Redrow, claiming the combined company would “accelerate the delivery of the homes this country needs”.

The financial terms of the all-share combination, being unanimously recommended by Redrow’s board, represent a premium of approximately 27.2% to Redrow investors, the statement said.

The valuation was based on the closing price for Redrow shares on Tuesday.

Each Redrow shareholder will get 1.44 new Barratt shares for each Redrow share under the deal.

It would result in them owning almost a third of the new company, which is to be called Barratt Redrow.

The statement by Barratt said the planned combination would realise a model better able to navigate market challenges, such as last year’s pressures on house price values.

It said separately on Wednesday that activity had picked up following the hit to demand seen across the industry due to the cost of living crisis, along with efforts to tackle that inflation, which have resulted in higher mortgage costs.

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The downturn had prompted housebuilders to drastically cut their forecasts for new home completions.

But the latest housing market report by the Halifax building society pointed to further momentum in price growth since the Bank of England’s decision last summer to halt its programme of interest rate hikes.

Its data showed a 2.5% lift for house prices in the year to January, the strongest annual growth rate for a year.

Halifax said recent drops in mortgage rates, falling inflation and a resilient labour market had helped confidence return among buyers and sellers in 2024 to date despite continuing economic uncertainty.

Barratt said the tie-up would “bring together complementary offerings to create an exceptional UK homebuilder in terms of quality, service and sustainability that builds high-quality, sustainable homes and communities for customers across the UK, addressing the country’s need for homes.”

In its half-year results statement which showed a 28% decline in new home completions in the final six months of 2023 compared to the same period a year earlier, chief executive David Thomas said: “Despite the challenging macroeconomic backdrop, underlying demand for our homes is strong.

“Since the start of January, we have seen early signs of improvement in both reservation rates and buyer sentiment, helped by expectations of lower interest rates and the introduction of more competitive mortgage rates.”

Revenue also fell at Redrow over the same period.

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