Bellway, one of the largest housebuilders in Britain, has announced job cuts in response to an anticipated slowdown in the property market. The company attributes this anticipated downturn to higher mortgage rates and the upcoming closure of the help-to-buy program. As a result, Bellway plans to shut down two of its divisions and reduce activity in a third, as it expects a significant decrease in house completions over the next year.
Due to a sharp decline in demand for houses, driven by higher interest rates that make homeownership unaffordable for many, Bellway has made the decision to close its South Midlands and London Partnerships divisions. Additionally, production will be scaled back in its Durham business, with sites in these divisions being transferred to other companies.
Bellway will also be reducing its workforce of 3,000 employees and has begun consulting on job cuts. While the exact number of job losses has not been specified, the company states that it will be a small percentage overall.
Recent increases in mortgage payments, caused by higher interest rates, have put significant financial strain on households. The Bank of England’s recent decision to raise the base rate to 5.25% suggests that borrowing costs will remain high for the foreseeable future. The average two-year fixed residential mortgage rate is now 6.83%, according to Moneyfacts. In response to these challenges, Bellway is offering more incentives to attract buyers, such as a mortgage offer that covers up to £24,000 of mortgage payments for the first two years.
Bellway’s CEO, Jason Honeyman, acknowledges the impact of macroeconomic uncertainty and cost of living pressures on consumer demand. He expects trading conditions to remain challenging in the near term due to constrained affordability caused by higher mortgage interest rates. As a result, the company predicts a significant decrease in the number of legal completions in the current financial year.
In the past year, Bellway’s overall reservations, including social homes, have fallen by 28.4%, with reservations for private homes down by 35.9%. The cancellation rate has also increased from 13% to 18% in 2022. The company’s order book has declined from 7,223 homes worth £2.1 billion a year earlier to 4,411 homes worth £1.2 billion at the end of the year. To adjust to the housing market downturn, Bellway has significantly reduced the amount of land it has purchased, acquiring only 4,715 plots compared to 19,089 in 2022.
In terms of construction, Bellway completed 10,945 homes compared to 11,198 in the previous year. The average selling price has also decreased from £314,399 to £310,000.
The government’s help-to-buy program has been beneficial for housebuilders, including Bellway, as it has provided support to first-time buyers and home movers. This program has accounted for more than a fifth of Bellway’s completions.
Investec analyst Aynsley Lammin notes that trading conditions have weakened in recent weeks, and Bellway is responding to these trends. When asked if Bellway is performing worse than its competitors, Lammin suggests that Bellway had been more focused on growth, giving them the flexibility to slow their divisional growth, merge two divisions, or close a smaller division without impacting their ability to deliver over the next two to three years. He believes that Bellway is not necessarily experiencing a harder hit, but rather has more less mature divisions, allowing for reorganization in preparation for a challenging trading period in the next six to twelve months.
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