Redrow anticipate earnings to halve on sluggish home gross sales

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UK housebuilder Redrow expects its earnings to fall by half subsequent yr as home gross sales stay sluggish, within the newest signal of ache for the housing sector from excessive mortgage charges. 

The FTSE 250 group on Wednesday gave a brand new forecast that its revenue earlier than tax would fall to £180mn-£200mn within the yr to June 2024, in contrast with £395mn within the earlier yr. 

It’s the newest housebuilder to flag a considerable downturn. Optimism that gross sales would enhance in the summertime proved short-lived after mortgage charges rose once more in June.

“Mortgage charges elevated a lot in such a short while,” mentioned chief govt Matthew Pratt. “We don’t want mortgage charges happening to make our business work. What we want is stability so that folks know the place they’re.” 

The UK’s largest housebuilder, Barratt, mentioned final week that it anticipated the marketplace for new houses wouldn’t recuperate for at the very least two years, because it paused share buybacks to protect money. Massive builders have already diminished land shopping for, slowed building and minimize prices to attempt to climate the downturn. 

The slowdown in new constructing places the federal government’s goal to construct 300,000 houses annually in England additional out of attain, including to the UK housing scarcity. 

Redrow, which focuses on indifferent houses notably for individuals downsizing, mentioned in July it might shut two regional places of work. Pratt mentioned the corporate was “making an attempt to rightsize [our] overhead” and had minimize about 150 jobs from a workforce of greater than 2,000 via a hiring freeze and a few redundancies. 

The group’s underlying revenue earlier than tax fell 4 per cent on an annual foundation to £395mn within the yr to the top of June, whereas the variety of houses it accomplished dropped 5 per cent to five,436. Redrow reported the tempo of gross sales over the summer time was greater than 40 per cent slower than final yr. 

“The gross sales fee . . . within the final 10 weeks highlights how troublesome the present market is,” Peel Hunt analysts wrote, including that the rest of this yr and early 2024 had been “prone to be the nadir by way of housebuilders reported outcomes”.

The slower gross sales market has introduced some aid on constructing value inflation, which had been an enormous strain on housebuilders. Redrow anticipated constructing prices would rise 4 per cent in its subsequent monetary yr, in contrast with 8 per cent within the earlier interval. 

Mortgage charges have additionally dipped in latest weeks as markets hope for no additional UK rate of interest rises. Nationwide and Santander turned the newest massive lenders to chop mortgage charges this week. Though they’re falling, common borrowing prices are nonetheless greater than the degrees reached instantly after the UK’s “mini-budget” final autumn, which induced a pointy rise in mortgage charges.