Bellway’s profits slump after booking huge building safety costs

Profits at Bellway plummeted after the homebuilder agreed to massive compensation for improvements to building safety.

Despite posting record revenues thanks to rising private home completions, the FTSE 250 company revealed on Tuesday that profits in the 12 months ended July have fallen 38 percent year-on-year to £242.6 million.

It recorded a cost of £346.2 million related to fire-fighting measures on buildings over 11 meters high built over the past three decades, down from just £51.8 million in the last year.

In April, the Newcastle-based firm joined other major housing developers by joining the UK Government’s Building Safety Pledge, which was created in response to the Grenfell Tower fire.

Excluding the cost of this commitment, Bellway’s underlying pre-tax profit rose 22.5 per cent to £650.4 million on the back of ongoing pandemic-induced demand for new homes among Britons.

The company’s total home completions exceeded targets, rising 10.5 percent to nearly 11,200 homes, with new home growth in the north outpacing declining demand for new social housing in the south.

Average selling prices also rose 2.6 per cent to £314,400 as record low interest rates and a temporary stamp duty holiday drove even higher prices on the UK housing market.

But the group predicts average sales prices will fall to around £300,000 this financial year and expects council housing sales to have a larger share.

Bellway’s results come amid signs of a slowdown in the real estate market, with data from the website Rightmove showing first-time buyer demand was about a fifth weaker than last year in the first two weeks of October.

Mortgage rates have also risen sharply in recent weeks following a widely criticized ‘mini-budget’ by former Chancellor Kwasi Kwarteng, which included £45bn in unfunded tax cuts.

While most of those measures have been rolled back, swap rates — a common metric used to price mortgage deals — remain high and lenders have introduced more expensive deals to customers.

The Bank of England also plans to raise interest rates further, having raised them seven times in a row since December 2021.

Against this backdrop, bosses at Bellway’s forecasted production will be “at a similar level to the previous year,” although AJ Bell’s investment director Russ Mold said even this outlook “seems ambitious.”

He added: “Even if this is achieved, margins are likely to suffer as rising input costs are no longer masked by continued home price inflation.

“Bellway and other homebuilders have already had a terrible year, so the question is how much of that has been priced in. The sector can stay out of fashion as long as mortgage costs rise.’

Bellway ShareShares were down 2.9 percent to £17.73 by early afternoon on Tuesday, meaning their value is down 46 percent over the past 12 months.