How are market conditions impacting housebuilders?

Housebuilder Bellway recently published its latest trading update, which revealed its overall reservation rate had reduced by 28.4% to 156 per week, while the private reservation rate decreased by 35.9% to 109 per week, in the year to July.

Its underlying operating margin is also expected to fall - from 18.5% to 16.5% - with the reduction reflecting the effect of build cost and overhead inflation, extended site durations and the increased use of targeted sales incentives.

Now, brokers have delivered their views on how market conditions are impacting housebuilders, and what they would like to see done to assist this area of the market.

Housebuilder challenges

Simon Jones, co-founder at Investing Reviews, said private reservation rates being down so sharply reveals all you need to know about the state of demand for property right now: “it is on its knees.”

“With mortgage rates as high as they are, especially at higher loan-to-values (LTV), many people cannot afford to buy, while many others are still waiting for house prices to come down more before they make their move,” he said.

Jones said that the end of Help to Buy had been a hammer blow, and added that the cost-of-living crisis and rising rents had also eroded the deposits of many aspiring homeowners.

Stephen Perkins (pictured left), managing director at Yellow Brick Mortgages, concurred with Jones that the conclusion of Help to Buy had been hard felt, and added that many would-be buyers are no longer able to afford the new home premium price, leading to reduced reservations.

Seeing construction costs go up, house prices start to drop, and a lack of government incentives for potential buyers, Perkins said housebuilders are deciding to slow or pause their building plans and prefer to sit on land and planning.

Joe Garner (pictured centre), founder and managing director at Joe Garner Consulting, said reservations, house sales and completions will decrease until interest rates drop and prices cool.

Ideally, Garner said there will be an organic, controlled return to growth, with interest rates stabilising around 3% to 4% and supply increasing to match demand.

“Boom and bust must be replaced with an ebb and flow of supply and demand in order to prevent overheating following a sharp drop in house prices,” he added.

While Darryl Dhoffer (pictured right), from The Mortgage Expert, conceded that housebuilders’ underlying operating margins are expected to decline, he believes if more housebuilders provide a blanket deposit and legal fees contribution, along with enhanced energy efficiency upgrades, they could see these margins climb again.

Housebuilders’ view

Jason Honeyman, group chief executive of Bellway, said the backdrop of macroeconomic uncertainty and cost-of-living pressures had affected consumer demand over the course of the year so far.

“Given affordability remains constrained by higher mortgage interest rates, underlying trading conditions are also likely to remain challenging in the near term,” he added.

However, to help mitigate this, and notwithstanding ongoing delays in the planning system, Honeyman said the depth of the housebuilder’s land bank provides scope to deliver outlet growth in the current financial year and beyond.

How are market conditions impacting housebuilders from what you have seen? Let us know in the comment section below.