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Bellway results - reservation rates down sharply

ended 09. August 2023

The house builder, Bellway Plc, has just published its latest trading update (key highlights below).

  • The overall reservation rate reduced by 28.4% to 156 per week (2022 – 218) and the private reservation rate decreased by 35.9% to 109 per week (2022 – 170).
  • Housing revenue of around £3.4 billion (2022 – £3,520.6 million), in line with previous guidance.
  • Total housing completions of 10,945 homes (2022 – 11,198), at an average selling price of £310,000 (2022 – £314,399).
  • The underlying operating margin is expected to be around 16%3 (2022 – 18.5%), with the reduction reflecting the effect of build cost and overhead inflation, extended site durations and the increased use of targeted sales incentives.
  • The Group’s programme of accelerating the construction of social homes partially offset weaker private demand, which was impacted by higher mortgage rates and the end of Help-to-Buy.

Jason Honeyman, Group Chief Executive, commented:

“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, advisors, 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.”

UK newswire, Newspage, sought the views of property and financial services experts, below.

8 responses from the Newspage community

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Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Housebuilders such as Bellway are grappling with the impact of 14 successive interest rate hikes, and it's expected that reservation rates will continue to be impacted. The conclusion of the Help to Buy scheme undoubtedly intensifies their challenges. For a positive shift in their trajectory, they would benefit from government support in housing or a significant reduction in interest rates. Unfortunately, neither outcome seems imminent. Housebuilders should switch their focus to smaller starter homes, which this country urgently needs.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Bellway came into this trading period in a good state and you can see that, despite lower margins caused by massive building cost inflation, they have bought back shares at a fast pace, keeping their share price fairly buoyant. Their balance sheet also remains healthy. Private residential reservations were a massive 35.9% down, clearly due to the pressure on interest rates and the cost of living. However, like other house builders, Bellway remain confident that a change in housing policy, namely another government, will be a boost to the sector as will a pivot on rate policy.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Nothing of surprise here. Following the end of help to buy, many would-be buyers are no longer able to afford the new home premium price, leading to reduced reservations. Seeing construction costs go up, house prices start to drop, and a lack of government incentives for potential buyers, house builders are deciding to slow or pause their building plans and preferring to sit on land/planning. This certainly won’t help the government objective of building more homes.
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Darryl Dhoffer
Founder at The Mortgage Geezer
The likes of Bellway reporting an operating margin of 16.5% forecast for this year, in today's climate, just shows how much margin can be obtained in a buoyant market for these new build companies. If more of them provide a blanket deposit and legal fees contribution, along with enhanced energy efficiency upgrades, they could see margins climb again. My only concern is not enough affordable housing coming to market, in particular more widespread shared ownership properties, for all clients, with varied adverse credit backgrounds, that doesn't quite tick the box for many associations. Having a blip on their credit file does not mean these borrowers should be discarded.
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Simon Jones
CEO at Investing Reviews
Private reservation rates being down so sharply says all you need to know about the state of demand for property right now: it's on its knees. With mortgage rates as high as they are, especially at higher loan-to-values, many people cannot afford to buy, while many others still are waiting for house prices to come down more before they make their move. The end of Help to Buy has been a hammer blow. The cost of living crisis and rising rents have also eroded the deposits of many aspiring homeowners, and will have set many back a year or two in their ambition to get onto the property ladder.
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Graham Cox
Director at Bridging Hub
Bellway's latest trading update illustrates the challenges house builders are facing in a high interest rate environment. The 35.9% fall in private reservations is not surprising given the end of Help to Buy and mortgage rates around 6% for buyers with small deposits. Rising build costs and the increased use of buyer incentives have reduced Bellway's margins, adding to their woes. The problem is, for many first-time buyers, new builds are completely unaffordable, and the gravy train for house builders has now come to a shuddering halt.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
Reservations, house sales and completions will decrease until interest rates drop and prices cool. Ideally, we will see an organic, controlled return to growth with interest rates stabilised around 3% to 4% and supply increased to match demand. Boom and bust must be replaced with an ebb and flow of supply and demand to prevent overheating followed a sharp drop in house prices.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
An average price of £310000 per unit sold and an underlying profit margin expected at 16.3%. That's £50530 profit per house sold, on average, which is not a bad day's work, even if it is down from previous years. I think the uncertainty around mortgages earlier in the year, with rates rising rapidly, will certainly have contributed to people's reluctance to reserve new homes. But now that we are seeing more and more lenders reducing rates, some by quite a margin, we could see a newfound confidence which may translate to a pickup in reservations, and housing activity in general, in the latter part of the year.