Bellway jobs go in homes slump

Jun 6 2008 by Iain Laing, The Journal

LOW cost housebuilder Bellway revealed it is cutting 250 jobs after delivering a profit warning as it became the latest corporate casualty in the housing market slump.

The Newcastle company is axing around 10% of its 2,500 workers, about 450 of whom are in the North East, and said its sales for the year are currently around 30% down on last year. For the whole year house sales are forecast to be down by around 15%.

It was more bad news for the housing sector on the day the UK’s biggest mortgage lender, Halifax, announced that house prices fell 2.4% in May to leave them 3.8% lower year-on-year – the biggest year-on-year drop since April 1993.

Shares in construction stocks fell by as much as 10% after broker UBS placed sell ratings on three firms, slashed dividend forecasts by up to two-thirds and said profits would be under “severe pressure” this year and next.

The housing sector has been one of the biggest victims of the credit crunch and wider economic slowdown, with tighter mortgage availability squeezing sales by as much as 30% this year.

UBS analyst Mark Stockdale said: “In light of the rapidly worsening conditions in UK house building we think it is now becoming inevitable that sector profits are going to come under extreme pressure over the next year.

“It is hard to see where the quick fix comes to the problems in the mortgage market and, consequently, it is clear to us that this is now a severe problem for profits in both 2008 and 2009.”

Bellway said that its focus on social housing gave it some protection from the crunch but margins had been cut and reservations had fallen from £845m last year to £706m. It is reviewing work and projects across the board.

Like most businesses it reacted stoically to the Bank of England’s decision to freeze interest rates at 5% yesterday and financial director Alastair Leitch did not forecast a quick end to the UK’s economic slump which means Bellway’s profit is forecast to be £175m- £180m compared with £235m last year.

“The country won’t show any signs of recovery until the banks start lending to each other again and consumer confidence is restored on that. That is not likely to happen until at least March or April next year,” said Leitch.

“I could see that a cut in interest rates would have been good for housebuilders and business but it would not have been good for the economy and that is what we have to think of.”

The company said that the Midlands, Yorkshire and the North West were particularly hard hit but that the North East was resilient with business down 20% compared to around 31% nationally. “There are more people wanting to buy property here. We have one of the lowest owner-occupier ratios in the country, ” added Leitch.

The company recently reported pre-tax profits of £96.9m in the six months to the end of January, against £100.8m the previous year and its shares rose more than 3% yesterday. Numis analyst Chris Millington said “Bellway is doing ‘better than the pack’”. Fellow builders Redrow has predicted a 20% sales decline this year and Persimmon sales have fallen 24%.

FREEZE EXPECTED

BUSINESSES were pragmatic as interest rates were frozen at 5% yesterday as the Bank of England continued its fight to keep a lid on inflation.

Policymakers have little scope to reduce rates after the Consumer Prices Index hit 3% amid fears that inflation could move higher in coming months. Economists said there was no guarantee that interest rates will be cut at all this year.

The Bank’s vote against a cut came despite gathering gloom over the UK housing market and wider economy.

Richard Bottomley, president of the North East Chamber of Commerce and partner at KPMG in Newcastle, said: “The Bank’s decision to hold interest rates was largely to be expected. However, with food and fuel prices soaring, more needs to be done to reassure businesses than can be achieved through monetary policy alone.”

HOUSE PRICES ARE CONTINUING TO FALL

BRITAIN’S biggest mortgage lender, Halifax, said the cost of a home slipped by a further 2.4% during May to stand at an average of £184,111.

The average home now costs 6.8% less than it did at the beginning of the year, with prices falling in four of the past five months, while property values are 9.4% lower than at their peak in August last year.

Martin Ellis, Halifax chief economist, said: "The decline in prices is caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability. These factors have curbed housing demand."

But the group stressed that the price falls needed to be seen in the context of the strong house price gains experienced in recent years.