One of the U.K.’s biggest homebuilders is to cut the number of houses it constructs by nearly a third next year as higher interest rates and stretched consumer budgets reduce demand for new properties.
Bellway
BWY,
which is listed in London’s mid-cap FTSE 250
UK:MCX,
said on Tuesday it was targeting building around 7,500 homes in the 2024 fiscal year, compared with 10,945 in the previous year.
“Since the start of the new financial year, customer demand continues to be affected by mortgage affordability constraints, with reservations below the comparative rates in the prior year,” Bellway said as it delivered preliminary results for the year to the end of July.
The Newcastle-based builder said it expects its overall average selling price to fall 5% to £295,000 ($359,250) in the 2024 financial year, from £310,306 in 2023. Underlying profits fell 18.1% from the year before to £532.6 million ($648 million).
Bellway’s decision to trim production comes as U.K. two-year fixed mortgage rates sit just shy of multi-year highs around 6.5%. This follows the Bank of England’s sequence of interest rate hikes designed to damp inflation that is still running at more than three times the central bank’s 2% target.
As higher mortgage costs bite, the average U.K house price has fallen 5.3% over the year to September, according to Nationwide, a lender.
“It’s a miserable time to be a housebuilder despite operating in a country with a chronic housing shortage,” said Russ Mould, investment director at AJ bell. “Selling prices haven’t fallen off a cliff which is reassuring for the company. However, it is at the mercy of the mortgage market and the ability for aspiring homeowners to be able to afford a loan at the current elevated interest rates.”
Bellway shares initially fell more than 4% but by lunchtime in London were a fraction firmer on the day as U.K. stocks outperformed the region. The FTSE 100
UK:UKX
added 0.3% while Frankfurt’s DAX
DX:DAX
lost 0.3% and the CAC 40
FR:PX1
in Paris shed 0.1%.
Supporting London’s blue-chip index was a a 1.2% gain for shares of Rolls-Royce
RR,
after the aero engine group revealed a restructuring that included the cutting of up to 2,500 jobs.
“A strategic overhaul at Rolls-Royce…was well-received given savings which could amount to up to £200 million,” said Richard Hunter, head of markets at Interactive Investor. “The shares have had a stellar year so far, rising by more than 130%, as any number of factors have played into the company’s hands, not least of which has been the return to airline travel.”
European telecom equipment makers were under pressure as shares in Ericsson
ERIC.B,
lost 8% after the Swedish group withdrew its margin guidance for the year.
In forex, the U.K. pound
GBPUSD,
fell 0.3% to $1.2178 after data showed that average total pay growth in the three months to August fell to 8.1%, down from 8.5% the previous month, while job vacancies fell to a two-year low of 988,000.
“What we saw from today’s figures was generally weaker evidence on both wages and activity,” said George Buckley, economist at Nomura. “This combination we believe will help the MPC [the Bank of England’s monetary policy committee] to decide that it is done on its tightening cycle, and we expect rate cuts from Q3 next year.”
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