Scottish housebuilding chief declares market can handle rising interest rates

Innes Smith declared the future for Springfield remains bright against the backdrop of the growing cost of living crisis, which has seen the Bank of England increase interest rates from a historic low of 0.1 per cent to 0.5 per cent since December in a bid to combat surging inflation.

Asked if he was concerned about the effect of rising interest rates on the housing market, Mr Smith said demand for new homes in Scotland continued to outstrip supply. He expressed the view that interest rates would not be allowed to spiral, and told The Herald that the current house price and cost inflation “won’t go on forever”.

Mr Smith said: “The situation in Scotland is demand is way over supply – we are just not building enough houses in Scotland for a number of reasons. That means the supply is never keeping up with demand. That means we are in a good position from a market point of view.”

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Mr Smith noted the housing market in Scotland was not as “volatile” as it is in England, which he said had seen huge price inflation on the back of the Help to Buy scheme between 2010 and 2018. He declared that houses in Scotland “are affordable”.

Mr Smith’s comments came as Springfield reported a fall in profits to £6.2 million for the six months ended November 30, down from £8.6m for the corresponding period for the year before.

Springfield completed fewer private homes over the period, at 197 versus 299, which it said was down to a phasing issue created by Covid. Homes originally scheduled for completion in the first half of its last financial year were delayed because of lockdown, boosting the completion rate in the second half.

Despite the reversal, Mr Smith said Springfield was on track for an “outstanding” second half and to meet expectations that have been revised upwards, telling the City in a statement that this confidence was based on “homes completed, reserved and missived, and our highest-ever revenue in affordable housing”.

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Springfield said it had a total land bank of 15,308 plots at period-end, compared with 15,281 as at May 31, with a gross development value of £3.1 billion.

Mr Smith highlighted the contribution which will be made by the acquisition of Tulloch Homes, which he said Springfield had purchased at the “third time of asking”.

The Tulloch deal has brought Springfield around 1,800 plots of land for homes in the Inverness area, which largely have planning permission and are virtually all paid for. Some 139 people have joined Springfield from Tulloch, including managing director Sandy Grant. Only George Fraser, long-standing boss of Tulloch, has left; Mr Fraser plans to retire.

The Tulloch brand will be retained because of its strength in the Inverness area. “It is a great purchase for us, and really gives us a good presence [in Inverness],” Mr Smith said. “It is going to generate a lot of cash in the next three to five years.”

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Mr Smith added the deal had brought certainty to the staff at Tulloch, who had been unsure about its future given that it had been private equity backed. “A lot of the employees were reassured when we bought them,” he said.

Mr Smith said Springfield would continue to assess further acquisition opportunities as they arise, both in Scotland and elsewhere in the UK.

Meanwhile, Springfield said it had “effectively managed cost and supply chain pressures”, which at various times has seen it grapple with shortages of electrical goods, wood, roof tiles and windows. Mr Smith explained that the disruption to supply chains means orders now have to be placed much further in advance.

Mr Smith also underlined the growth of Springfield’s affordable homes division, declaring that the Scottish Government had been “true to its word” by increasing its investment to ease the housing shortage. The company completed 204 affordable homes in the first half, up from 126 in the same period last year, with Mr Smith saying its strategy of buying land for this purpose is “paying off”.

Springfield commenced completions on eight private developments after period-end. The company declared an interim dividend of 1.5p per share, up from 1.3p per share, reflecting its confidence in the outlook. Shares closed down 2.3p, or 1.53%, at 147.7p.