Profits at Bellway tumbled after the housebuilder agreed to a massive charge for building safety improvements.
Despite achieving record revenues on the back of rising private home completions, the FTSE 250 firm on Tuesday revealed profits plunged 38 per cent year-on-year to £242.6million in the 12 months ending July.
It booked a £346.2million expense related to fire remediation measures on buildings over 11 metres tall, constructed over the previous three decades, against just £51.8million during the last year.
Earnings: Despite achieving record revenues, the FTSE 250 firm revealed its profits plunged by 38 per cent year-on-year to £242.6million for the 12 months ending July
In April, the Newcastle-based company joined other major housing developers in signing up to the UK Government’s Building Safety Pledge, which was set up in response to the Grenfell Tower fire.
When discounting the cost of this commitment, Bellway’s underlying pre-tax profit was up 22.5 per cent to £650.4million thanks to the continued pandemic-induced demand for new homes among Britons.
The firm’s overall house completions surpassed targets, rising by 10.5 per cent to almost 11,200 properties, with the growth in new homes across the North outpacing falling demand for new social housing in the South.
Average selling prices also rose 2.6 per cent to £314,400 as record low interest rates and a temporary stamp duty holiday drove even higher prices in the UK housing market.
But the group forecasts average sale prices will decline to around £300,000 this financial year and it expects social housing sales to comprise a higher share.
Bellway’s results come amid signs of a slowdown in the property market, with figures from the website Rightmove showing first-time buyer demand was around a fifth weaker in the first fortnight of October than last year.
Mortgage rates have also spiked in recent weeks following a widely-criticised ‘mini-budget from former Chancellor Kwasi Kwarteng, which included £45billion worth of unfunded tax cuts.
Though most of those measures have been reversed, swap rates – a common metric used to price mortgage deals – remain elevated, and lenders have introduced more expensive deals for customers.
The Bank of England is also set to hike interest rates further, having already raised them on seven consecutive occasions since December 2021.
Amidst this backdrop, bosses at Bellway forecast output will be ‘at a similar level to the prior year,’ although AJ Bell’s investment director, Russ Mould, said even this outlook ‘looks ambitious.’
He added: ‘Even if it achieves this, margins are likely to suffer as rising input costs are no longer masked by continuing house price inflation.
‘Bellway and other housebuilders have already had a horrible year in share price terms, so the question is just how much of this is priced in. The sector may remain out of fashion for as long as mortgage costs are on the rise.’
Bellway shares were down 2.9 per cent to £17.73 during the early afternoon on Tuesday, meaning their value has declined by 46 per cent over the past 12 months.
