Housebuilding giant Bellway has provided further evidence of the strength of the recent upturn in the market after seeing profits plunge in the latest financial year amid challenging trading conditions.
The company saw profits fall by 57% in the year to July 31 as increases in interest rates weighed on demand for new homes.
Bellway is a major player in Scotland. It is marketing 22 developments across the country’s Central Belt.
Chief executive Jason Honeyman said the Newcastle-based company has achieved a resilient performance in the face of the headwinds affecting the sector.
A series of housebuilders have complained about the problems that followed the Bank of England’s decision to increase interest rates repeatedly from December 2021 to tackle inflation.
READ MORE: Barratt Developments highlights pressure on new home sales
Bellway highlighted the improvement in the market which accelerated in the second half of the latest year after a fall in the inflation rate boosted hopes the Bank would loosen policy.
These were fulfilled in August when the Bank cut its key interest rate for the first time since the pandemic, to 5% from 5.25%.
Bellway said: “Customer demand through the second half benefitted from a moderation in mortgage interest rates which has eased affordability pressures and supported an increase in reservations.”
The company noted that customer confidence had also been boosted by the fall in the rate of consumer price inflation and an increase in wages.
Mr Honeyman said the improvement in conditions increased directors’ confidence in Bellway’s long term growth prospects amid strong expected demand for homes.
He noted the new Labour Government has promised to reform the planning system south of the border to make it easier for firms to develop sites. Ministers hope this will help to close the current gap between supply and demand.
READ MORE: £1.4bn Cala sale shows investor confidence in Scottish housing market
Russ Mould, investment director at investment platform operator AJ Bell said: “The stars are finally aligning for the housebuilding sector. The new government has pro-housing policies with a promise to relax the planning system which has caused hold-ups and headaches in recent years; interest rates are coming down which makes mortgages more affordable; and property prices are strengthening.”
Control of planning issues in Scotland is reserved to the Scottish Government.
In the Programme for Government published last month First Minister John Swinney said his administration would ensure the planning system responds to the housing emergency in the country.
Mr Mould noted that hopes of further cuts in interest rates were boosted after official figures showed the UK economy stagnated in June and July, although it expanded in August.
He believes Bellway is well-placed to capitalise on strong demand for homes after building up a big land bank.
It is marketing homes on developments across Central Belt Scotland, from Ayrshire to Fife.
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Matt Britzman, senior equity analyst, at the Hargreaves Lansdown investment business noted: “Bellway’s long-term strength is volume, and the landbank is well-prepped for higher output - this should keep the name in good standing as the market recovers.”
The £1.4bn purchase of the Cala housing business by international investors last month signalled confidence in the outlook for the housing market.
Cala has a strong presence in Scotland. It began life as the City of Aberdeen Land Association.
In the programme it published last month, the Scottish Government said it would support planning authorities to allocate a pipeline of land for new homes and promote consistent monitoring of its delivery.
It will work to extend the services offered by a new Planning Hub to support housing developments.
READ MORE: SNP Government green jobs failure seen in English city's success
Bellway made £226m profit before tax in the year to July 31, compared with £532m in the preceding year.
The total number of houses it sold fell by 30% to 7,654 from 10,945. The average selling price fell slightly, to £307,909, from £310,306.
Total revenues fell 30% to £2.38bn from £3.4bn.
The company has seen interest in its developments increase strongly in the current year.
It noted: “In the nine weeks since 1 August, and against a weak comparative, the private reservation rate increased by 48.5% to 147 per week.”
The company said it expects to maintain the average number of sales outlets at 245.
Bellway acquired 27 sites for a total cost of £345m in the year to July 31. In the preceding year it bought 35 sites for £378m.
Bellway shares closed up 8%, 254p at 3306p.
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