U.K. Homebuilder Bellway to Reduce House Production

by Warren Seah

Bellway, one of the largest homebuilders in the U.K., plans to decrease the number of houses it constructs by nearly a third in the coming year. This decision is a response to higher interest rates and limited consumer budgets, which have led to a decrease in demand for new properties.

Decrease in House Production

Bellway, listed in London’s mid-cap FTSE 250 UK:MCX, announced that it aims to build around 7,500 homes in the 2024 fiscal year, compared to the 10,945 constructed in the previous year. The decrease in customer demand since the start of the new financial year is attributed to mortgage affordability constraints.

Impact on Prices and Profits

As a result of the challenging market conditions, Bellway expects its average selling price to decline by 5% in the 2024 financial year, reaching £295,000 ($359,250) compared to £310,306 in 2023. Additionally, underlying profits decreased by 18.1% to £532.6 million ($648 million) compared to the previous year.

High Mortgage Rates and Falling House Prices

Bellway’s decision to reduce production aligns with the current trend of increasing two-year fixed mortgage rates in the U.K., which are approaching multi-year highs of around 6.5%. The Bank of England’s series of interest rate hikes, aimed at curbing inflation, are responsible for this rise. As a consequence, the average house price in the U.K. has fallen by 5.3% over the past year, according to Nationwide.

Challenging Times for Housebuilders

Despite operating in a country with a chronic housing shortage, housebuilders like Bellway face a challenging period. Selling prices have not experienced a significant downturn, which provides some reassurance for the company. However, Bellway is dependent on the mortgage market and the ability of aspiring homeowners to afford loans at current elevated interest rates, according to Russ Mould, investment director at AJ Bell.

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Bellway shares experienced an initial drop of more than 4%, but by lunchtime in London, they had slightly recovered as U.K. stocks outperformed the region. The FTSE 100 added 0.3%, while Frankfurt’s DAX lost 0.3% and the CAC 40 in Paris shed 0.1%.

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