HOUSEBUILDING giant Bellway has signalled it is braced for a near one third fall in sales as increases in mortgage rates amid the ‘stubborn inflationary environment’ weigh on demand for homes.

The company, which has sites across central Scotland, said it is targeting completion of 7,500 homes in the current period, down 31 per cent from 10,945 in the last financial year.

The expected slump in completions follows a fall in reservation rates that underlines the scale of the challenge facing housebuilders such as Bellway, which reported a sharp fall in annual profits yesterday.

The company made £532 million profit before tax and one-offs in the year ended July 31, down around 18% on the £650m achieved in the preceding year.

Bellway highlighted the pressure on demand that has followed the series of interest rate rises imposed by the Bank of England since December 2021. Policymakers hope these will help cool the surge in inflation that started amid the recovery from the pandemic.

Bellway’s chief executive Jason Honeyman said the impact of the resulting increase in mortgage rates has been particularly acute for customers requiring a higher loan-to-value mortgage. He noted that for first-time buyers the effect of rate rises has been exacerbated by the ending of the support provided by the Government under the Help-to-Buy scheme in England in March 2023. The Scottish Government scrapped its Help-to-Buy scheme ended in 2021.

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Bellway has used price cuts to help prop up demand. The resulting pressure on margins has been compounded by the effect of the cost increases that builders have faced.

Bellway said it anticipates headwinds from lower volume output, ongoing pressures of cost inflation and the use of sales incentives to persist. 

The Newcastle-based group responded by cutting an undisclosed number of jobs in the latest year and limiting land purchases.

It said its programme of accelerating the construction of social homes has partially offset weaker private demand.

Mr Honeyman welcomed signs that inflationary pressures are easing in a way that could herald an improvement in market conditions.

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Bellway reckons the long-term outlook for the housing market remains good and that the strength of its land bank will allow it to capitalise on any recovery.

Directors recommended the full year dividend be maintained at 140p per share.

The company said the £100m share buy back programme it launched in March was progressing well.

In the year to July 31, the number of home completions logged by Bellway fell by 2%, from 11,198 in the preceding year. Bellway’s average selling price fell to £310,306, from £314,399.

Bellway noted: “In financial year 2024 we currently expect the overall average selling price to be around £295,000 … primarily reflecting a higher expected proportion of social housing completions and a continued use of incentives.”

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In the nine weeks from August 1 overall weekly reservations fell to 133, from 191 in the comparable period last time. The reservation rate fell to 156 in the year to July 31 from 218 last time.

It is understood that Bellway's performance in Scotland was in line with the rest of the UK in the latest year.

Last month Scottish housebuilder Springfield Properties noted “significantly lower levels of reservations in private housing”. It cited the impact of continued high interest rates, mortgage affordability and reduced homebuyer confidence, which the company’s board does not expect to materially improve before Spring 2024.

Bellway shares closed up 72p at 2,234p.