Housebuilder’s profits return to pre-Covid levels

The buoyant housing market has returned to historically average levels says housebuilder Redrow as it announced a return to record underlying profits.

Announcing its full year financial results, Redrow said it delivered 5,715 legal completions during the year, 95 more than 2021, generating revenues of £2.1bn, that’s 10% up on last year’s £1.9bn.

Underlying pre-tax profit was up 31% from £314m to £410m.

In line with the company’s policy of three times dividend cover the board is proposing a final dividend of 22.0p making a total of 32.0p for the year, which is up by 31%.

While the last two years saw an ‘incredibly strong’ market with elevated demand, partly resulting from people’s changed priorities around working from home, the group said the market has now returned to historically average levels due to rising inflation and higher interest rates.

Redrow said its investment in land, combined with strong demand for its ‘Heritage homes’ will support its continued growth with an order book of £1.4bn putting the group in a strong position for 2023.

The group has also continued its withdrawal from the London market which is expected to be complete by the end of this year, other than the ongoing Colindale development.

Capital released from London in the last two years has been reinvested in land to help grow the regional businesses.

Matthew Pratt, group CEO, said: “The fundamentals of the market remain good. Interest rates, despite recent increases, are at historically low levels; mortgage availability is very good and employment levels are strong.

“We are well aware of the challenges of the increasing cost of living. It’s clear our quality new homes will have a growing and additional point of differentiation from the second-hand market around energy efficiency.”

Analyst Charlie Huggins, Head of Equities at Wealth Club, said: “House prices have proved remarkably robust since the pandemic struck, buoyed by pent-up savings and cheap mortgages. Redrow, like other housebuilders, has gushed cash in this environment and is earning huge margins to boot.

“Redrow’s premium quality housing is resonating strongly in the current environment, with the ‘race for space’ supporting demand for larger, family homes. But, make no mistake – the biggest reason for Redrow’s success is high house prices, and the general strength of the housing market.

“That is something over which it has no control, and the big bad wolf of recession could be about to blow away the good times.

“Increasing house prices in recent years mean home buyers are having to borrow more to get on the housing ladder. Combine that with rising interest rates, which ultimately mean more expensive mortgages, and the affordability of property could fall substantially. If interest rates keep rising, it’s hard to see how the housing market would be immune.”