It expects a drop in sales completions amid the housing market slowdown
Bellway, one of the UK’s largest house builders, said it would build fewer homes this year as it reported a drop in its annual revenue.
The residential property developer’s revenue for the year to July 31 fell by 38% to £3.4 billion from £5.52 billion in the previous year, with housing completions also 2.3% lower at 10,945 homes this year. The average selling price of homes also went down by 1.4% from £314,399 to £310,000.
“The backdrop of macroeconomic uncertainty and cost-of-living pressures affected consumer demand during the year, and given affordability remains constrained by higher mortgage interest rates, underlying trading conditions are likely to remain challenging in the near term,” Jason Honeyman, chief executive at Bellway, stated in the company’s latest trading update.
“To help mitigate this, and notwithstanding ongoing delays in the planning system, the depth of our land bank provides scope to deliver outlet growth in the current financial year and beyond.”
“Bellway’s operational strength and experienced teams will enable the group to successfully navigate changing market conditions and, supported by a strong balance sheet, it is well-placed to continue to deliver high quality homes to our customers and returns for shareholders.”
Britain's Bellway says new home sales to fall 'materially' https://t.co/kirFPTILyM pic.twitter.com/QKaD0FMls3
— Reuters UK (@ReutersUK) August 9, 2023
Despite its positive company outlook, Bellway admitted that it expects a drop in sales completions due to the housing market slowdown caused by higher mortgage rates.
Earlier this week, Sky News reported that the housebuilder was considering proposals to cut around 90 jobs, as well as shutting down two regional divisions, with demand from new buyers falling.
Bellway’s rival, Barratt Developments, predicted that it would build around 20% fewer homes in 2024, while Berkeley expected the same drop in home sales, according to Reuters.
“Housebuilders such as Bellway are grappling with the impact of 14 successive interest rate hikes, and it’s expected that reservation rates will continue to be impacted,” commented Riz Malik, director at independent mortgage broker R3 Mortgages. “The conclusion of the Help to Buy scheme undoubtedly intensifies their challenges.
“For a positive shift in their trajectory, they would benefit from government support in housing or a significant reduction in interest rates. Unfortunately, neither outcome seems imminent. Housebuilders should switch their focus to smaller starter homes, which this country urgently needs.”
Graham Cox, founder of the Bristol-based broker SelfEmployedMortgageHub.com, added that Bellway’s latest trading update illustrated the challenges house builders were facing in a high interest rate environment.
“Rising build costs and the increased use of buyer incentives have reduced Bellway’s margins, adding to their woes,” Cox said. “The problem is, for many first-time buyers, new builds are completely unaffordable, and the gravy train for house builders has now come to a shuddering halt.”
Samuel Mather-Holgate of advisory firm Mather & Murray Financial, however, pointed out that despite lower margins caused by massive building cost inflation, they have bought back shares at a fast pace, keeping their share price fairly buoyant.
“Like other house builders, Bellway remain confident that a change in housing policy, namely another government, will be a boost to the sector as will a pivot on rate policy,” he remarked.
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