Barratt Developments struck a cautiously optimistic tone on Wednesday, citing an increase in residential property sales last month.

The UK’s largest housebuilder reported a “a modest uplift” in reservations in January, signalling the start of a recovery in trading, although its chief executive warned against “getting carried away” given the affordability constraints on first-time buyers.

“Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing,” Barratt said yesterday in a trading update alongside its interim results.

The signs of improvement in a tough housing market sparked a mini-rally among residential property developers, with shares in the biggest housebuilders, including Barratt, Persimmon, Bellway and Redrow, all rising by about 2% in morning trading.

Residential property prices have now fallen for five consecutive months, down another 0.6% between December and January, the latest Halifax data shows. But the smaller month-on-month price decline, rather than the double-digit price drop predicted by some following the ill-fated mini-Budget in September last year, appears to be encouraging news for buyers.

Barratt’s chief executive, David Thomas, said: “I think that [slower rate of house price falls] helps a lot in terms of consumer confidence particularly for the first-time buyer.”

Barratt, which built 8,626 homes in the half year, said it expected to complete 16,500-17,000 homes in its 2023 financial year.

Analyst Julie Palmer, partner at Begbies Traynor, said: “With the UK facing a long-term housing shortage, Barratt remains a fundamentally strong business. It has a healthy level of cash on the balance sheet, but this dipped below £1billion during the first half [of the year]. Weekly reservation rates have also crashed in recent trading and forward sales are similarly down.”