- Home sales across the UK have plummeted following a rise in mortgage rates
- Redrow’s operations have been further affected by rising construction materials costs.
- The company expects to achieve revenue of between £1.65bn and £1.7bn this financial year.
Redrow has warned that its annual results will approach the lower end of its guidance range amid continued weakness in the British property sector.
The Flintshire-based housebuilder expects to achieve revenues of between £1.65bn and £1.7bn, as well as pre-tax profits of between £180m and £200m in the 2024 financial year.
House sales across the UK have plummeted this year following a rise in mortgage costs caused by the Bank of England raising the base rate on 14 consecutive occasions.
Forecast: Redrow has warned that its annual results will be at the lower end of its guidance range amid continued weakness in the British property sector.
Trading has been further hit by rising costs of building materials, restrictive planning laws delaying the approval of new build projects and the end of the Help to Buy scheme.
Ahead of its annual general meeting, Redrow revealed that the value of net private reserves in the 18 weeks to November 3 fell a quarter year-on-year to £384 million.
This was because average selling prices fell 2.5 per cent to £471,000, but more significantly because sales rates at its outlets fell to 0.49 per week, compared to 0.63 in the equivalent period in 2022.
The firm also blamed greater mortgage problems “lower down the chains” for causing charge-off rates to rise to 25 percent so far this year.
Redrow’s clients tend to be wealthier than rival property developers, and more than a third of them are cash buyers.
Richard Akers, chairman of Redrow, said: “Following the usual summer slowdown that we reported in our 2023 results announcement, the property market has remained subdued throughout the autumn.”
“The company has had to adapt to this more difficult business environment in terms of construction rate and operating costs.”
Although some inflationary pressures have eased, Redrow forecasts overall construction cost inflation will be around 7 per cent this financial year.
Redrow’s trading update comes a day after fellow housebuilder Taylor Wimpey said its annual profits were forecast to hit the top end of guidance.
Build more houses?
Builders argue that the current slowdown in construction is due to economic pressures holding back demand from homebuyers, as well as openly complaining about Britain’s creaking planning system.
But critics accuse the sector of “land banking” and greed after housebuilders doled out £16bn in dividends over the past 18 years.
> Britain’s housing shortage: why it’s not as simple as “build more houses”
Although the company has also been affected by difficult conditions in the real estate sector, since July cancellation rates have fallen, while its weekly sales rate has remained stable.
Another property developer, Persimmon, upgraded its new construction outlook earlier this week despite new home completions falling 37 per cent in the third quarter.
Russ Mould, investment director at AJ Bell, said: “We know the property market is in a bad place, so Redrow’s disappointing trading update can be seen in that context.
‘Despite the borrowing cost picture slowly improving, mortgages remain expensive and there are other pressures on people’s purchasing power, and all of this is having an impact on demand.
“What paints things worse for Redrow is that a number of its peers have announced stronger performance over the last week and there have also been some signs of stabilization in property prices.”
Redrow shares fell 5.9 per cent to 489.4p on Friday morning after the trading update, making them the biggest faller on the FTSE 250 index.