A major housebuilder is to reduce staff numbers after interest rates and borrowing costs led to a drop in reservations and completions and an increase in cancellations.

Bellway has said it will build fewer homes this year because of a sharp slowdown in the property market after significant increases in mortgage rates.

The FTSE 250 housebuilder told shareholders that it expects sale completions to "decrease materially" due to weaker order numbers and "low reservation rates".

It comes after 14 consecutive increases in interest rates, which have risen to a 15-year high of 5.25% and pushed mortgage costs higher for homeowners.

It said “customer demand during the year was affected by the volatility in mortgage interest rates”, adding that a promising start to the financial year was followed by a period of “very challenging trading” when sales rates were hit by sharp increases in borrowing costs.

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The Newcastle-based firm which has sites across Scotland reported housing revenues of around £3.4 billion for the year ended July 31, down from £3.52bn over the same period last year.

“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,” Bellway said. “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.”

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Bellway said it had delivered a robust performance, but the recent increase in mortgage rates through June and July has resulted in a “weaker trading environment”.

It said: “In the current financial year, given the level of the order book and prevailing low reservation rates, legal completions are expected to decrease materially.”

The overall reservation rate was 28.4% lower than the prior year at an average of 156 per week, against 218. Completions reduced by 2.3% to 10,945, although this was just short of its guidance of 11,000.

The overall cancellation rate for the full year has trended upwards and averaged 18%, against 13% last year.

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Jason Honeyman, group chief executive of Bellway, said conditions in the property market are therefore "likely to remain challenging in the near term".

Bellway said that recent increases in mortgage rates in June and July particularly weakened demand.

Operating margins also weakened over the period amid the combined impact of softer demand and continued cost inflation in building homes.

Mr Honeyman 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, advisers, 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.”

He also said: "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."

It said a £100m share buyback launched in March is “progressing well, with 2.9 million shares purchased at a cost of around £66m”.

Shares in Bellway closed down 20p, or 0.9%, at 2,196p.