Redrow flags weaker profits as new home sales slump

Redrow has warned its annual results are set to come in towards the bottom end of its guidance range amid continued weakness in the British property sector.

The Flintshire-based housebuilder anticipates achieving revenue of £1.65billion to £1.7billion as well as pre-tax profits of between £180million and £200million in the 2024 financial year.

Housing sales across the UK have slumped this year following a surge in mortgage costs caused by the Bank of England hiking the base rate on 14 successive occasions.

Forecast: Redrow has warned that its annual results are set to be towards the bottom end of its guidance range amid continued weakness in the British property sector

Trading has been further impacted by increasing building material costs, restrictive planning laws delaying approval for new-build projects, and the end of the Help to Buy scheme.

Ahead of its annual general meeting, Redrow revealed the value of net private reservations in the 18 weeks to 3 November dropped by a quarter year-on-year to £384million.

This was caused by average selling prices dipping by 2.5 per cent to £471,000, but more significantly by sales rates at its outlets falling to 0.49 per week, compared to 0.63 in the equivalent period in 2022.

The firm also blamed greater mortgage troubles ‘lower down the chains’ for causing cancellation rates to increase to 25 per cent in the year to date.

Redrow’s customers tend to skew wealthier than rival property developers, and more than a third of them are cash buyers.

Richard Akers, chairman of Redrow, said: ‘Following the usual summer slowdown we reported in our 2023 results announcement, the housing market has remained subdued through the Autumn.’

‘The business has had to adapt to this more difficult trading environment in terms of build rate and operating costs.’

Although some inflationary pressures have eased, Redrow forecasts overall build cost inflation will be around 7 per cent this financial year.

Redrow’s trading update comes a day after fellow housebuilder Taylor Wimpey said its annual profits were predicted to hit the top end of guidance.

Why don’t we build more homes?

Builders argue their current building slowdown is due to economic pressures dampening demand from home buyers, as well vocally complaining about Britain’s creaking planning system.

But critics accuse the sector of ‘land banking’ and greed after homebuilders dished out £16billion in dividends over the last 18 years.

> Britain’s housing shortage: Why it’s not as simple as ‘build more homes’ 

Although the company has likewise been affected by challenging conditions in the housing sector, since July, cancellation rates have fallen while its weekly sales rate has flatlined.

Another property developer, Persimmon, upgraded its new-build outlook earlier this week despite new home completions plunging by 37 per cent in the third quarter.

Russ Mould, investment director at AJ Bell, said: ‘We know the housing market is in a bad place, so Redrow’s disappointing trading update can be seen in that context.

‘Despite a slowly improving picture on borrowing costs, mortgages are still expensive, and there are other pressures on people’s spending power, and all of this is having an impact on demand.

‘What paints things in a worse light for Redrow is several of its peer group have announced more solid performance over the last week or so and there have been some signs of stabilisation in property prices too.’

Redrow shares declined by 5.9 per cent to 489.4p on Friday morning following the trading update, making them the biggest faller on the FTSE 250 Index.

This post first appeared on Dailymail.co.uk