British housebuilder Redrow PLC (LSE:RDW)’s chief executive Matthew Pratt warned on Wednesday that the “cost of living and mortgage affordability continue to have a negative impact” on the housing market.
He made the comments as the housebuilder posted a decline in the total dividend it will pay out to shareholders this year. Redrow distributed a final dividend of 20p, making the total dividend paid to shareholders for the fiscal year 30p, less than the 32p paid to shareholders in 2022.
The housebuilder’s underlying return on capital was 23.1% for fiscal year 2023, compared to 24.5% a year earlier, as its revenue slid slightly year over year to £2.13 billion, from £2.14 billion in 2022.
It posted statutory pre-tax profit of £395 million, up from £246 million a year earlier, while its underlying pre-tax profit represented a decline from £410 million in 2022.
The company has guided for revenue in a range of £1.65 billion to £1.7 billion in 2024, which would represent a decline compared to the £2.13 billion it generated in 2023, based on a similar sales rate of 0.46 per outlet per week, it said.
The latest guidance comes as the company carried out a restructuring in July that involved the closure of two offices and completed its withdrawal from the London market.
Redrow’s shares rose by nearly 7% on results day yesterday, in line with UBS’s prediction that the market would react positively to the announcement, and continued to lift slightly today, trading at 506.5p around by 14:40 on Thursday.
The banking group recommended buying Redrow’s shares based on a price target of 565p per share. UBS said in a broker note that Redrow’s shares looked “inexpensive”, given that the shares were trading at 0.78x their reported tangible net asset value for fiscal 2023.
Data provider Capital Economics said on Tuesday that higher mortgage rates are “limiting lending” and making it more difficult for single-income households to get on the property ladder.
The data provider predicted that a fall in lending volumes and increase in arrears will “become more severe” in the second half of the year, according to its second-quarterly mortgage lending and administrator analysis, since fixed rates are in demise and mortgage rates are higher.
It also said the rise in the average interest rate on new advances has further restricted total lending volumes.
In August, Capital Economics said it foresaw a slump in total mortgage lending and transactions, though according to its analysis house prices will eventually have to come down as a result.
“Our forecast that the Bank of England won’t start cutting interest rates until the second half of 2024 means mortgage rates are likely to stay between 5.5% and 6.0% for the next 12 months,” Capital Economics said in a statement.
“That will price many buyers out of the market, and lead to a further slump in mortgage lending and transactions.
“Moreover, as high mortgage rates bear down on the amount buyers can borrow, while the number of homes for sale increases from the extraordinarily low levels of 2021-22, a further leg down in house prices seems inevitable.”
Housebuilders may get a reprieve as soon as later this month, as the House of Lords’ committee for the built environment is expected to publish its report on the impact of environmental regulations on housing development next Thursday.
The cross-party committee, chaired by Lord Moylan, led an inquiry to examine how these regulations impact the costs and processes involved in housing development. It is expected to make recommendations to the government on how to improve the implementation of environmental regulations that could aid developers as well as the environment.