The UK housebuilder Bellway has said demand for houses has moderated since the summer and it expects the number of sales to be roughly flat over the next year against a backdrop of rising interest rates and a deteriorating economy.
The company completed a record 11,198 homes in the year to 31 July, up 10.5% on the previous year, as a booming housing market drove £3.5bn of revenues, up 13% and also a record.
However, profit before tax fell 36.5% to £304m last year because of a £346m charge, a payment it made towards the industry’s £5bn building safety levy to fix all unsafe tall buildings after the Grenfell Tower fire in 2017. Excluding this charge, profit rose 22.5% to £650m. Bellway said it had set aside £513m in relation to buildings in England, Scotland and Wales since 2017.
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The housebuilder, which focuses mainly on two-storey family homes, warned that the next 12 months would be tougher, with the UK economy likely to go into recession and interest rates heading higher.
“While Bellway entered the year with a strong forward order book, given the backdrop of rising interest rates and wider economic uncertainty, the board currently expects to deliver volume at a similar level to the prior year,” the builder said. It had previously predicted 12,200 completions.
“The final outturn will be dependent on the autumn and spring selling seasons and the group will prioritise its strong disciplines in relation to both margin and quality of profit,” it added.
Bellway said strong demand for housing since the start of the Covid pandemic had “moderated” in the nine weeks since 1 August. Weekly reservations fell by 12.4% to 191 a week over the period. This compares with 218 a week in the same period last year and 239 a week in 2020. Bellway’s cancellation rate has remained stable at 13%.
An Investec analyst, Aynsley Lammin, said: “Good results for 2022, but the market has clearly deteriorated markedly since the summer with the autumn selling season starting very badly.”
Shares in Bellway fell 1% on Tuesday morning.
Like other housebuilders, Bellway benefited from a “race for space” during the Covid pandemic, when the switch to home working prompted many people to move to bigger homes or greener surroundings, along with a lack of supply and the government’s help to buy scheme, which is due to end next March. Customers used help to buy in 16% of Bellway’s reservations, compared with 30% in 2021.
The former chancellor Kwasi Kwarteng’s mini-budget of unfunded tax cuts on 23 September triggered a sell-off in financial markets and raised expectations for even higher interest rates, leading to more than 1,000 products being pulled from the mortgage market. Many lenders have since returned with far more expensive deals.
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Monday’s move by the new chancellor, Jeremy Hunt, to rip up most of the mini-budget could help stabilise the housing market, but the Bank of England’s sizeable interest rate rise expected in November means many borrowers will still face rises in home loan payments.
The Bellway chief executive, Jason Honeyman, said the company would “take a more cautious approach to land investment in the year ahead” during a period of economic uncertainty. Bellway expects its average selling price to drop 4.6% to £300,000, in part because it is building more social housing.
“We do not expect cost inflation to abate, given materials shortages, rising wage costs and elevated energy prices,” he added. The global shortage of semiconductors has meant that kitchen appliances and gas boilers have been in short supply, although the situation has improved in recent months.
The Royal Institution of Chartered Surveyors has signalled the end of the UK’s 13-year housing market boom, with repossessions due to rise next year amid higher interest rates and falling house prices. Several economists have predicted that house prices could fall by up to 20% next year.
