Housebuilder Taylor Wimpey PLC (LON:TW.) said it has delivered a strong performance in the second half but the current order book is lower than last year and costs are expected to rise.
In a trading update, the group reported sales rates of 0.71 for the second half, compared to 0.70 the same period a year earlier. In the year-to-date, the sales rate was 0.81, up from 0.75 last year, but over the last eight weeks, the rates rate has been flat at 0.73.
"Taylor Wimpey has performed strongly during the second half of 2017, delivering excellent sales rates and making further good progress against our operational targets,” said chief executive Pete Redfern.
“While we are alert to potential political and economic risks, demand for new housing remains high across the UK and market conditions are favourable.”
The group said customer demand remained robust despite Brexit uncertainty, supported by healthy UK employment, a competitive mortgage market and the government's Help to Buy scheme.
Order book lower, costs higher
However, the current total order book, excluding joint ventures, stood at 8,751 homes at £2.2bn, compared to 8,981 at £2.3bn last year.
Building costs are expected to rise between 3% and 4% this year due to higher wages and increasing inflation on the price of building materials.
In April, Taylor Wimpey also set aside £130mln to cover disputes over leases taken out by customers that have left some of them with a doubling in ground rent as it unveiled a good start to trading in 2017.
In today’s statement, the group said it expects a “modest cash” impact in 2017, with the majority of the outflow to be spread over the next two years.
READ: Taylor Wimpey to take £130mln provision for ground rent dispute as 2017 sees good start
The company has reached agreements with freeholders to allow customers with 10-year doubling leases to convert to a structure that includes price increases in line with the retail price index (RPI).
The group said converting to an RPI-based structure “addresses concerns about the mortgageability and saleability of these properties”.
“We continue to make good progress towards securing agreements with other freeholders to also enable the conversion of the remaining doubling ground rent leases,” it said in a statement.
On track to meet full-year expectations
Still, Taylor Wimpey said it remains on track to deliver fiscal year 2017 results in line with its expectations. It also expects to achieve further growth and performance improvement in 2018, including an increase in the operating profit margin, a return on net operating assets of more than 30% and a total dividend of £500mln.
“We reiterate our intent to make further material capital returns in 2019 and beyond, and we will provide further details at our Strategy Day next year,” the company said.
“We remain highly focused on driving improvements in all our operational disciplines and are pleased with the continued progress being made with both our customer and product offerings.”
Taylor Wimpey cautious amid Brexit uncertainty
The company added that while underlying market conditions “remain healthy”, it remains cautious of the potential risks from heightened political and economic uncertainty.
However, it believes it is well placed to manage any changes in market conditions with a “robust” balance sheet, a high quality landbank and a “strong” order book.
Given the market uncertainties, the group said it is only buying plots of land that meet its investment and location criteria. It added 13,700 plots to its landbank in the year to end of October.
The Bank of England has raised interest rates, which could constrain house price growth looking forward, according to Hargreaves Lansdown analyst Laith Khalaf.
"However the rate rise was modest, and borrowing money to buy a house is still incredibly cheap by historical standards, and looks set to remain so for some time to come," he said.
UK Budget looms
Khalaf added that with the Budget approaching next week and the housing shortage high on the agenda, housebuilders will be hoping for further investment from the government.
ETX Capital analyst Neil Wilson also believes the Budget will be closely eyed.
"Investors will be less concerned about current trading conditions than what the chancellor has up his sleeve in the Budget next week," he said.
"Certainly some more support for homebuilders is on the cards given the nation’s housing shortage and pressure on the government to act to help younger voters. However the prospect of anything radical being unleashed is small as the government is not keen on upsetting core Tory heartlands by, for instance, allowing green belt development."