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30 Jun, 2020 07:54 30 Jun, 2020 10:48

Redrow warns of full year profits hit as it scales back London ops

Firm begs govt to extend controversial 'help-to-buy' scheme

redrow

Housebuilder Redrow said annual profits would be “substantially” lower after scaling back its London operations and factoring in the impact of Covid-19.

Redrow said it turnover was expected to fall sharply to £1.34bn against £2.11bn last year and consensus forecasts of £1.46bn.

It completed 4,032 homes in the year to the end of June, down from 6,443 in the previous year, but the order book was at a record £1.42bn for the fiscal year starting in July, as construction would be second half weighted.

The company also called on the government to extend its controversial 'help-to-buy' scheme, which is due to end next March. Critics have argued that the mechanism, where buyers borrow up to 20% of a property's value from the government, has boosted housebuilders' profits and share prices while doing little to alleviate the country's chronic housing shortage.

They also believe it has artificially inflated house prices, defeating its primary purpose of getting first-time buyers on to the property ladder and made companies too dependent on it to generate profits.

“The prospects for the wider economy and its impact upon the new homes market remains uncertain,” Redrow said on Tuesday.

“The timing of site closures due to Covid-19 towards the end of March had a profound impact upon the group’s results in a year, which was budgeted to be disproportionately weighted to the end of the second-half,” the company said.

Redrow said it was scaling back its London to focus on higher returning regional businesses and its higher-specification Heritage range of period-style arts and crafts homes.

Costs and related significant impairments associated with the scaling back of the London business will be provided for in the June 2020 accounts, the company said.

AJ Bell investment director Russ Mould said housebuilders had become "addicted" to the Help to Buy.

“Help to Buy has been a major boost to housebuilders’ sales and there is a growing fear that many companies are too dependent on it. Take it away and housebuilders’ earnings could potentially suffer, despite there being an imbalance between supply and demand causing a housing shortage in the country."

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Pilling and Co Stockbrokers Ltd. is not responsible for the content or accuracy of third party news articles and we may not share the views of the author.

We provide third party news for your convenience and information only and make no representation or endorsement whatsoever and hereby exclude all liability for any loss or damage that may be incurred by you as a result of your access or use. Please note that third party content may be subject to terms and conditions imposed by the third party owner of that content.