Housebuilder Springfield has provided further evidence of how challenging trading conditions have become in the sector although it is confident the market will recover and has noted the outlook in Scotland is brighter than in other parts of the UK.
Springfield said that it expected to post record revenues of around £330 million for the year to May 31 helped by acquisitions completed in recent years. These allowed the firm to capitalise on the boom that was encouraged by a long period of very low interest rates and official support measures.
However, in an update on trading in the year to May 31, Springfield underlined that housebuilders are operating in much tougher conditions than at the start of the period. It said the 28 per cent growth in revenues was achieved despite turmoil in the market.
Chief executive Innes Smith said: "We remain cautious about the near-term outlook, particularly given the softening in demand following the increase in rates by the Bank of England to 5%.”
Mr Smith’s remarks highlight the impact on demand of the moves made by the Bank of England to push up borrowing costs in its bid to tackle surging inflation.
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Builders have also seen their profit margins getting squeezed amid the cost pressures that the bank aims to address.
Springfield noted that it has taken a cautious approach to entering into new long-term affordable housing contracts given significant build cost inflation.
Other housebuilders have sounded a sober note recently. Barratt Developments said last week that its net reservation rate fell 32% annually in the year to June 30.
Springfield said it is taking a prudent approach. The company has cut costs and trimmed its land bank.
However, the company underlined its confidence that market conditions will improve in time.
The sector was boosted by news that the headline inflation rate fell to 7.9% in the year to June, from 8.7% in the year to May. This will encourage hopes the Bank of England will not increase interest rates further.
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Shares in Barratt Developments rose around six per cent in morning trading.
Springfield sees advantages to being focused on Scotland rather than areas in which prices reached much higher levels during the boom, such as South-East England.
Mr Smith said: “The fundamentals of the housing sector in Scotland remain strong. There is an undersupply of housing, which is being exacerbated by the current conditions, and there is greater affordability in Scotland compared with the UK as a whole.”
Springfield also highlighted supportive aspects of the Scottish legal system, noting: “The Group's private housing is supported by the Scottish missive system, which ensures that customers are contracted into the purchase much earlier in the build programme.”
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