Scottish housebuilder Springfield Properties lost 10% of its stock market worth today after it suspended dividend payments and warned it does not expect to see “any material improvement in homebuyer confidence” before spring next year.

The Elgin-based company has embarked on a strategy to slash debt amid significantly lower levels of reservations in private housing, as it cited the impact of high interest rates, mortgage affordability and reduced confidence among the house-buying public.

It told the City that it had suspended dividend payments until its bank debt is “materially reduced” and unveiled a range of measures aimed to reduce net debt to around £55 million by May 31, 2024. The company's net debt had spiralled to £67.7m by May 31 this year from £38.1m the year before.

Springfield outlined the difficulties it is facing in the short-term as the housing market continues to come under pressure from the recent surge in interest rates. The base rate currently stands at 5.25% following 14 consecutive rises by the Bank of England's Montetary Policy Committee. It will unveil the result of its latest vote tomorrow, with economists forecasting a further quarter-point rise to 5.5%. The base rate had been at a record low of 0.1% as recently as December 2021.

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Springfield said that it secured an additional £18m term loan and a 12-month extension to its overdraft facility to “ensure sufficient headroom” in the short term. It noted that it was actively pursuing land sales to accelerate the realisation of cash from its large land bank, carefully managing working capital, and pausing all speculative private housing development, noting that it will only build new homes where they have been reserved.

It also signalled its re-entry to new long-term affordable-only housing contracts, having paused activity in this area in its last financial year, amid concern over the Scottish Government’s affordable housing investment benchmarks. Those benchmarks were increased by 16.9% in June and Springfield said it has signed contracts for £9.7m on May 31 and another for £8.1m post-year end, with a further 13 under negotiation.

The company reported a 22% fall in pre-tax profits to £15.3m for the year ended May 31 amid significant cost inflation, and trimmed its profit expectations to £10m-£14m for 2024.

Chief executive Innes Smith declared that the “fundamentals of our business and our position within the Scottish housing market remain strong” despite the challenges the company was currently facing.

He said: “The fundamentals of the Scottish market remain extremely positive, which is why our confidence remains strong in the medium and long term.

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“With Scotland one of the few places across the UK where it is still cheaper to buy than rent a home privately, affordability for home buyers is favourable. Plus, with house prices across Scottish regions holding strong, the market here has proven to be far more resilient than elsewhere.

“We are pleased to see mortgage rates begin to normalise for our customers and look forward to experiencing re-energised customer demand when buyers seize this good time to buy. We will build homes as they are reserved to react to levels of demand. And we will continue to offer our customers an unrivalled level of choice and specification, build them a highly energy efficient home, which keeps their running costs low, alongside our fantastic customer service.”

Springfield reported today that the 12 months to May 31 had been a year of record completions, which increased to 1,301 from 1,242.

Its private housing division saw strong growth, boosted by the acquisitions of Tulloch Homes and Mactaggart & Mickel Homes, with revenue climbing by 45% to £253.4m. But revenue from affordable housing dipped by 16% to £53.9m as margins came under pressure from build cost inflation and the fixed cost of contracts. It noted that the Scottish Government had now revised affordable housing investment benchmarks for inflation.

Springfield also said that during the year it had withdrawn plans for further projects in the private rented sector following the introduction of rent controls by the Scottish Government.

Shares in Springfield closed down 9.92%, or 6p, at 54.5p.