Bellway lowers housing target despite new government scheme
Bellway aims to build 9,000-9,400 homes this year, down from 9,695 last year, but its CEO says the new Your First Home scheme could boost output by 10%.
Bellway is targeting the construction of between 9,000 and 9,400 homes in the current year. This revised goal is lower than the 9,695 homes the company built in the previous year.
Reasons behind the revised target
The lower target reflects a reduced forward order book and ongoing pressures on customer demand. Bellway's current forward order book stands at 4,981 homes with a value of £1.4bn. A year earlier, the order book was higher at 5,285 homes worth £1.5bn.
Potential uplift from government scheme
Despite the near-term reduction, Bellway's leadership sees significant potential in the government's new Your First Home scheme. Chief executive Jason Honeyman said the initiative could increase the company's annual house output by 10%. He based this projection on past experience with the Help to Buy scheme. Honeyman stated the scheme could provide a path back to building at least 10,000 homes a year and achieving a return on equity of 15%. It could help Bellway return annual completions to 10,000 homes in the 12-month period from next September at the earliest.
Scheme details and broader context
The Your First Home scheme, announced by Andy Burnham, is targeted at first-time buyers in England purchasing new-build flats or houses. It offers a government-backed equity loan worth 20% of the purchase price, with a minimum deposit requirement of just 2.5%. The scheme includes household income caps to exclude high earners and price caps to ensure the purchase of modest homes.
Nicholas Mendes of broker John Charcol explained that with the equity loan covering 20%, the mortgage sits at a 77.5% loan-to-value. This gives buyers access to lower interest rates than they would typically see on a 95% mortgage. Those using the scheme could save hundreds of pounds per month.
The scheme is expected to benefit major housebuilders including Persimmon, MJ Gleeson, Taylor Wimpey, and Bellway. Following the scheme's announcement, housebuilders' shares rose more than 10%. However, Berkeley Group, which focuses on higher-priced London properties, and Vistry Group, which has pivoted towards affordable and social homes, are not expected to benefit significantly.
Full details of the scheme, including its launch date, are expected to be announced by Chancellor John Healey in his first budget on 28 October.
Financial performance and outlook
Bellway's recent financial results showed resilience. Revenue for the year to 31 August was £3.16bn, up 13% from the previous year. Underlying profits before tax rose 5.7% to £305.7m. The company expects its average selling price to remain flat at about £325,000 over the coming year. Construction costs, however, are running at between 3% and 4%. Bellway shares rose 2% on Tuesday but are down more than a quarter for the year to date.
The scheme could help Bellway return annual completions to 10,000 homes in the 12-month period from next September at the earliest.
