UK house builder, Bellway Plc, released its latest trading update this week, revealing a significant 28.4% drop in the overall reservation rate to 156 per week, and a 35.9% reduction in private reservation rate to 109 per week.
The drop is seen as a reflection of the current challenging operating environment, marked by higher mortgage rates and the cessation of the Help to Buy scheme.
The report also highlighted housing revenue of £3.4bn, total housing completions of 10,945 homes at an average selling price of £310,000, and an expected underlying operating margin of around 16%.
The reduction in margins reflects increased build costs, extended site durations, and the greater use of targeted sales incentives.
Despite a challenging year, Bellway’s commitment to the construction of social homes has helped to partially offset weaker private demand.
Jason Honeyman, group chief executive of Bellway, said: “Bellway has delivered a resilient performance, with volume output and housing revenue in line with expectations and supported by the strength of our order book at the start of the 2023 financial year.
“In a challenging operating environment, the result has also been achieved through the dedication of our colleagues, subcontractors, advisors, and supply chain partners.
“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.
“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.”
UK newswire, Newspage, sought the views of property and financial services experts,here’s what they had to say.
Riz Malik, founder & director at R3 Mortgages:
“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. 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.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“Bellway came into this trading period in a good state and you can see 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.
“Their balance sheet also remains healthy. Private residential reservations were a massive 35.9% down, clearly due to the pressure on interest rates and the cost of living.
“However, 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.”
Simon Jones, co-founder at Investing Reviews:
“Private reservation rates being down so sharply says all you need to know about the state of demand for property right now: it’s on its knees.
“With mortgage rates as high as they are, especially at higher loan-to-values, many people cannot afford to buy, while many others still are waiting for house prices to come down more before they make their move.
“The end of Help to Buy has been a hammer blow. The cost of living crisis and rising rents have also eroded the deposits of many aspiring homeowners and will have set many back a year or two in their ambition to get onto the property ladder.”
Graham Cox, founder at SelfEmployedMortgageHub.com:
“Bellway’s latest trading update illustrates the challenges house builders are facing in a high interest rate environment. The 35.9% fall in private reservations is not surprising given the end of Help to Buy and mortgage rates around 6% for buyers with small deposits.
“Rising build costs and the increased use of buyer incentives have reduced Bellway’s margins, adding to their woes.
“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.”
Joe Garner, founder & managing director at Joe Garner Consulting:
“Reservations, house sales and completions will decrease until interest rates drop and prices cool. Ideally, we will see an organic, controlled return to growth with interest rates stabilised around 3% to 4% and supply increased to match demand.
“Boom and bust must be replaced with an ebb and flow of supply and demand to prevent overheating followed a sharp drop in house prices.”
