North East housebuilder Bellway expects to build fewer homes in the coming year, as demand plummets following a number of mortgage rate rises.
The Newcastle firm updated investors in an update for the year ended July 31 2023, saying it had delivered a “robust performance” in the financial year, but added that mortgage rate rises since June had resulted in a weaker trading environment. It said it was expecting to see housing revenue of around £3.4bn, down from £3.52bn last year.
The company’s overall reservation rate dropped by 28.4% to 156 per week and the private reservation rate plummeted by 35.9% to 109 per week. The underlying operating margin is expected to be around 16%, down from 18.5%, reflecting the impacts of build costs and overhead inflation, extended site durations and the increased use of targeted sales incentives.
Read more: Newcastle housebuilder Bellway to make redundancies amid closure of two divisions
Bellway said the group’s programme of accelerating the construction of social homes partially offset weaker private demand, which was affected by higher mortgage rates and the end of the Help-to-Buy scheme. It said it was continuing to focus on a “cautious and targeted approach to investment” in terms of securing land interests which offer “compelling and enhanced financial returns”.
During the year, the group contracted to purchase 4,715 plots across 35 sites – a huge drop on the 19,089 plots it bought in 2022 across 107 sites. The total contract value was £378.m, less than a third of the £1.3bn outlay last year. Following a review of previously contracted land it has also decided not to proceed with the purchase of 886 plots across four previously approved sites.
Despite low levels of unemployment and ongoing wage rises, the company highlighted lowering customer demand during the year, affected by the volatility in mortgage interest rates. It said legal completions are expected to decrease materially, as a result of the level of the order book and prevailing low reservation rates, and will provide a further update on the market outlook when it delivers its results in October.
Bellway said it has maintained a strong balance sheet with net cash of £232m at July 31, compared to the 2022 figure of £245.3m, and average net cash was £192m during the year, demonstrating the resilience of the group’s financial position. Its £100m share buyback launched in March is also progressing well, with 2.9m shares purchased at a cost of around £66m.
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Jason Honeyman, group chief executive, 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.
“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.”
The company this week confirmed it was restructuring a number of divisions which will result in redundancies, but said the number of job losses would be a small percentage of its overall 3,000 strong workforce.
In the trading update, the firm added: "Given the weaker trading backdrop and uncertain economic outlook, we continue to focus on maintaining Bellway's balance sheet resilience and we will maintain a highly disciplined approach to production expenditure in the year ahead. Following a review of overheads, we are also taking steps to reduce headcount across the Group. Importantly, to protect the long-term health of the business, these changes will not compromise the group's ability to return to growth when trading conditions improve. "