Bellway set to build a third fewer homes this year

Bellway has warned it could build almost a third fewer properties this financial year amid an ongoing slowdown in the housing sector. 

The Newcastle-based company is aiming to complete around 7,500 homes for the 12 months ending July 2024, compared to 10,956 in the previous year, due to a much lower reservation rate and order book.

In the first nine weeks following the start of August, the group reported reservations – buyers retaining the right to acquire a home for a specific time – averaged 133 per week against 199 for the equivalent period last year.

Bellway noted its forward sales at the start of this month were valued at £1.23billion, more than 40 per cent below October 2022 levels.

New build demand has dried up in response to an uptick in mortgage costs sparked by the Bank of England putting up interest rates on 14 successive occasions in efforts to fight inflation.

Soaring mortgage rates were exacerbated by former Prime Minister Liz Truss’s controversial mini-budget driving borrowing costs higher.

Bellway’s sales rebounded during the spring as borrowing costs moderated but slid again over the summer as cancellations and mortgage rates rose.

Despite this, the company’s turnover declined by just 3.7 per cent to £3.4billion in the 2023 financial year as higher social housing construction volumes partially offset a drop in new private units.

It also reported pre-tax profits jumped by more than half to £483million thanks to a significant fall in building safety improvement costs.

Jason Honeyman, chief executive of Bellway, said the company ‘delivered a resilient performance against a backdrop of rising mortgage interest rates and challenging market conditions’.

Bellway shares were 1 per cent, or 22p, up at £21.84 on early Tuesday afternoon and have grown by approximately a fifth over the past 12 months.

However, due to sales incentives and the increasing share of social homes being constructed, the firm predicts the average selling price of its properties to slump by another £15,000 to around £295,000 this year.

Meanwhile, underlying operating margin is set to slide even further amid weaker output levels and elevated cost pressures.

Oli Creasey, equity research analyst at Quilter Cheviot, said: ‘While these are clearly difficult trading conditions, the outlook is not materially different to those already provided by peers.’

Barratt Developments anticipates building about 20 per cent fewer homes in the current fiscal year, while Redrow forecasts its underlying pre-tax profits will more than halve to between £180million and £200million.

Creasy added: ‘Bellway and other housebuilders are expected to be able to weather the storm, although it may depend on how far into 2024 or beyond the market stress goes, given good cash balances and effectively zero debt.’