13th Jun 2023 10:28
(Alliance News) - Bellway PLC on Tuesday hailed an "encouraging" performance in the spring selling season, though the housebuilder may come under renewed pressure after a recent uptick in UK mortgage rates.
With another robust set of UK jobless data earlier on Tuesday, there is every chance the Bank of England is not done with its rate hikes yet, so borrowing costs may rise further.
The Newcastle Upon Tyne-based housebuilder reported a "sustained improvement in sales demand" during the spring selling season, compared with tougher trading conditions in the last three months of the 2022 calendar year.
From February 1 to June 4, Bellway said its overall reservation rate decreased by 25% to an average of 190 per week from 253 per week for the same period a year before. The reservation rate in the whole of first half ended January 31 was 32% lower year-on-year at 138 per week.
"Bellway has delivered an encouraging trading performance, buoyed by a seasonal uplift through the spring, and the group is on track to deliver full-year volume output of around 11,000 homes," Chief Executive Jason Honeyman commented.
Analysts at Irish broker Davy said Bellway's update does not yet reflect "the impact of the most recent squeeze in affordability". Mortgage rates have risen in recent days on the expectation of more Bank of England interest rate hikes.
According to a Rightmove trackerk, mortgage interest rates in the UK increased by an average of 0.39 percentage point in the week to June 6.
Rightmove said 10% and 15% deposit mortgages were those "hardest hit" by a recent acceleration in rates. The average rate of a five-year 90% loan-to-value mortgage was 5.22% at June 6, rising from 4.76% at the end of May. The average rate of a five-year 85% loan-to-value mortgage rose to 5.02% from 4.55%.
An LTV is what a house buyer borrows against what they put down as a deposit.
Bellway said on Tuesday: "Mortgage rates are currently higher than the equivalent period last year, although customers are adapting to new higher borrowing costs and affordability has been helped, in part, by ongoing wage rises. While overall mortgage availability has improved in recent months, the re-pricing of mortgage products, as lenders respond to changes in interest rates, continues to affect shorter-term availability. The recent expiry of Help-to-Buy in England has led to lower year-on-year demand from first time buyers."
The Bank of England next decides on interest rates a week on Thursday. The current Bank of England base rate stands at 4.50%. It is expected to lift the bank rate by another 25 basis points to 4.75% next week.
Expectations for a rate hike were boosted after another batch of bullish UK unemployment data.
The UK unemployment rate ticked downward in the three months to April, while pay growth picked up.
Unemployment edged down to 3.8% in the three months to April from 3.9% in the three months to March. Market consensus, as cited by FXStreet, had expected unemployment to rise to 4.0%.
In the three months to April, annual growth in average total pay, including bonuses, picked up to 6.5% from 6.1% in the three months to March. This came above market consensus, which expected pay growth to hold steady.
Excluding bonuses, annual average earnings growth was 7.2% in the three months to April, compared to 6.8% in the previous three months. This was above expectations of 6.9% growth.
Handelsbanken analyst James Sproule commented: "The governor of the Bank of England is giving a speech at 1500 [BST] today. There has been growing concern amongst monetary policy committee members that we are in danger of entering a wage-price spiral and it will be interesting to gauge what further direction he gives on monetary policy. We expect guidance of further cautious hikes and while today's data is not alarming, tight labour markets and wage rises above productivity will be pointing to a bit more tightening being needed."
By Eric Cunha, Alliance News news editor
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