Redrow profits to more than halve on housing market slowdown
- Redrow reported underlying pre-tax profits declined by 4% to £395m last year
- The firm is guiding for £180m to £200min pre-tax profits this current fiscal year
- Mortgage costs have climbed in the past 18 months due to interest rate hikes
Housebuilder Redrow has warned that profits are expected to more than halve this year, due to the ongoing slowdown facing the property market.
The Flintshire-based firm reported a 4 per cent underlying pre-tax profits decline to £395million for the year ending 2 July, as cost inflation exceeded continued house price growth.
Higher average selling prices still helped the company report flat turnover of £2.13billion, despite building 5 per cent fewer homes during the period.
Outlook: Redrow is guiding for £180million to £200million in pre-tax profits this year
But Redrow’s volume of net private reservations – the number of people putting their names down for a new house – slumped by more than £500million to £1.3billion as soaring interest rates continue to take their toll on demand.
Redrow’s outlets achieved an average private reservation rate of 0.46 per week, compared to 0.68 per week in the previous year.
Based on the former figure, the business is guiding for £180million to £200million in pre-tax profits this current fiscal year, and revenue of £1.65billion to £1.7billion.
Home borrowing costs have climbed in the past 18 months following 14 successive Bank of England interest rate hikes in response to elevated inflation levels.
This has been further compounded by former Prime Minister Liz Truss’s mini-budget, which caused significant panic in the housing sector, with more than 40 per cent of mortgage deals pulled in a single week last September.
The housing market recovered slightly in the spring, but Redrow’s sales rate fell again in June when lenders brought in additional mortgage rate rises.
Matthew Pratt, chief executive of Redrow, said: ‘Cost of living and mortgage affordability continue to have a negative impact on the market.
‘Where appropriate, we’ve used targeted sales incentives to convert buyer interest into reservations.
‘Following several consecutive Bank of England base rate increases, we remain hopeful that, as inflation eases, we will see some stability in mortgage rates.’
Redrow shares shrugged off the firm’s negative outlook to rise 3.8 per cent, or 18p, to £4.91 on Wednesday morning, although they have plunged by around a third in the last two years.
The FTSE 250 company’s annual results come after similarly downbeat updates last week from Berkeley and Barratt Developments, which both revealed their new home reservations had plummeted by at least 30 per cent in recent months.
Berkeley has also paused land purchases, pinning the blame on economic and regulatory uncertainty and the ‘protracted nature’ of the planning system.
On the day before the group’s announcement, figures from Halifax showed that UK house prices in August fell at their fastest annual pace in 14 years.
An average home now costs £279,569, about £14,000 lower than in August 2022, suggesting many Britons have been deterred by higher mortgage costs.
A two-year, fixed-rate mortgage currently stands at 6.7 per cent, compared to just 2.3 per cent in September 2021, according to financial data provider Moneyfacts.
Russ Mould, investment director at AJ Bell, said: ‘Affordability is a big problem for first-time buyers and existing homeowners looking to move to a bigger property.
‘Housebuilders argue there is a shortage of homes in the country, which means their business is not going to disappear completely.
‘However, there is scope for property prices to fall much further given the potential for interest rates to stay higher for longer.’