Housebuilders shares fell on Tuesday morning after FTSE 250 Bellway flagged mortgage affordability concerns heading into the second half of its financial year. The Newcastle-based firm told investors its overall reservation rate per outlet soared 18.6 per cent to 0.51 homes in the six months to 31 January, as its forward order book climbed from around £1billion to more than £1.3billion over the year.
But while Bellway cited encouraging 'seasonal' levels of customer enquiries and reservation rates, it cautioned that relatively high mortgage rates and broader economic woes continued to weigh on demand. It comes after the Bank of England resumed its path of monetary policy easing last week, cutting base rate by 25 basis points to 4.5 per cent. Nevertheless, mortgage rates remain far higher than pre-pandemic with the average fixed-rate two-and fiveyear mortgage rate at 5.3 and 5.5 per cent, respectively.
The bank is forecast to cut base rate on another three or four occasions in 2025, theoretically helping to boost mortgage affordability, as inflation hovers around the 2 per cent target and economic growth stutters. The Bank of England is expected to cut base rate by up to four more times this yea r. 'We remain mindful of the sensitivity of customer demand to mortgage affordability and the evolving economic backdrop,' Bellway said.
Boss Jason Honeyman added: 'Bellway has delivered a strong first half performance in challenging market conditions. While mortgage interest rates have increased modestly since the autumn, customer demand has remained robust.'. Bellway remains on track to build 8,500 homes this year, with the group telling investors that the 'long-term fundamentals of the UK housebuilding industry remain positive'. But Bellway share sank 5.5 per cent to 2,424p in early trading on Tuesday, while FTSE 100 rivals Persimmon, Barratt Redrow and Taylor Wimpey were down 2.4, 2.3 and 1.9 per cent, respectively.
Shares in sector took another hit last week amid amid ongoing concerns that Labour's pledge to build 1.5million homes during this parliament will not be fulfilled. Adam Vettese, market analyst at eToro, said analysts had been expecting 'a big surge of completions to go through' ahead of the lowering of stamp duty thresholds on 1 April. He added: 'Unfortunately for Bellway this seems to be more than offset this morning by the fact that there are now fewer rate cuts pencilled in for the year and inflation is set to take longer to settle to the Bank of England's 2 per cent target.'.
Bellway house prices were up by around 0.5 per cent over the period and it expects to maintain current levels for the rest of the year, driving its operating margin from 10 to 11 per cent. Oli Creasey, property analyst at Quilter Cheviot, said this 'represents the scale of the challenge that Bellway and other housebuilders face'. He added: 'given the company's operating margin in 2022 was around 18 per cent, there is still a long way to go before we can say the business or industry has fully recovered.
'Likewise, while Bellway's volumes are improving, they are still down by around 25 per cent compared to the 2022 peak.'. It came as fellow housebuilder MJ Gleeson posted 4.2 per cent revenue growth for the first-half to £157.9million, as it cited 'encouraging signs of a recovery in demand' with reservations rates up 45 per cent to 0.77 in the four weeks to 31 January. Boss Graham Prothero said 'there are early indications of an improving selling season', as the group maintained full-year guidance.
This helped MJ Gleeson shares shrug off broader industry gloom to add 1.9 per cent to 501p. Antony Codling, managing director at RBC Capital Markets, said: 'The growth plan for Gleeson is a marathon not a sprint, and at this early stage it is on track to deliver on its expectations over the medium term. 'The pace is good, and Gleeson has plenty of spring in its step.'. Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
