Despite concerns about the state of the UK housing market, Brexit and an industrywide shortage of material such as bricks and roof tiles, UK housebuilder Bellway is set to deliver 10,000 new homes this year, a record for the company. The upbeat statement accompanying financial figures for the six-month period ended January 2018 will surprise many people. At a time when the UK housing market is constantly under a cloud, how has Bellway managed to buck the trend?
Shortage of materials
Since the Grenfell disaster there has been excessive demand for roof tiles and bricks with cladding ripped off many high-rise flats. Not only has this seen Bellway experience an overall increase in material costs of 3% (due in part to currency movements) but bricks and roof tiles have increased by around 6%. Interestingly, the company was fairly upbeat on the long-term issue of a shortage of skilled labour which has been a constant drag on the performance of the UK housing market.
Middle to low end properties
At a time when we are seeing more and more reports of investors fleeing the London property market for other areas of the UK, it is interesting to see Bellway focusing on the middle to low end of the market. This has led to an increase of 6.3% in the number of homes delivered in the first half of the financial year, standing at 4,741, and an increase of 7.7% in the average selling price to £275,945.
The company believes that a mixture of low interest rates, fluid mortgage market and demand for properties outside of London will enable it to deliver more than 10,000 homes over the full financial year. It is also interesting to see that Bellway has very little in the way of exposure to the London housing market which has suffered most as a consequence of Brexit.
Is the rest of the UK benefiting from London’s downfall?
It is surprising to see that property markets outside of London are performing much better than many had expected. While UK house prices are expected to “tread water” in 2018 there is no doubt that London is still under extreme pressure. There is a growing consensus that London property investors are cashing in their “London premium” and using this to acquire larger properties for cheaper prices outside of the capital. This significant outflow of cash from the London property market would appear to be supporting many provincial markets with the North West seemingly a favourite at the moment.
As ever, so-called experts are jumping on the London bandwagon, calling the top of the market and forecasting significant downside in the short to medium term. Time and time again the London property market is written off, but time and time again it bounces back stronger than ever. It would be foolish to suggest that Brexit is not a challenge for London, blasé to suggest there is no further downside potential in the short to medium term but to write-off the London market, really?