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UK housebuilder Redrow expects its profits to fall by half next year as house sales remain sluggish, in the latest sign of pain for the housing sector from high mortgage rates.
The FTSE 250 group on Wednesday gave a new forecast that its profit before tax would fall to £180mn-£200mn in the year to June 2024, compared with £395mn in the previous year.
It is the latest housebuilder to flag a substantial downturn. Optimism that sales would improve in the summer proved short-lived after mortgage rates rose again in June.
“Mortgage rates increased so much in such a short time,” said chief executive Matthew Pratt. “We don’t need mortgage rates going down to make our industry work. What we need is stability so that people know where they are.”
The UK’s largest housebuilder, Barratt, said last week that it expected the market for new homes would not recover for at least two years, as it paused share buybacks to preserve cash. Large developers have already reduced land buying, slowed construction and cut costs to try to weather the downturn.
The slowdown in new building puts the government’s target to build 300,000 homes each year in England further out of reach, adding to the UK housing shortage.
Redrow, which focuses on detached homes particularly for people downsizing, said in July it would close two regional offices. Pratt said the company was “trying to rightsize [our] overhead” and had cut about 150 jobs from a workforce of more than 2,000 through a hiring freeze and some redundancies.
The group’s underlying profit before tax fell 4 per cent on an annual basis to £395mn in the year to the end of June, while the number of homes it completed dropped 5 per cent to 5,436. Redrow reported the pace of sales over the summer was more than 40 per cent slower than last year.
“The sales rate . . . in the last 10 weeks highlights how difficult the current market is,” Peel Hunt analysts wrote, adding that the remainder of this year and early 2024 were “likely to be the nadir in terms of housebuilders reported results”.
The slower sales market has brought some relief on building cost inflation, which had been a big pressure on housebuilders. Redrow expected building costs would rise 4 per cent in its next financial year, compared with 8 per cent in the previous period.
Mortgage rates have also dipped in recent weeks as markets hope for no further UK interest rate rises. Nationwide and Santander became the latest large lenders to cut mortgage rates this week. Although they are falling, average borrowing costs are still higher than the levels reached immediately after the UK’s “mini-budget” last autumn, which caused a sharp rise in mortgage rates.