Two of Britain's biggest builders Bovis Homes and Redrow are cutting 40 percent of their workforces, about 750 jobs in total, to cope with the deepening depression in the housing market. The downturn has gathered pace in the past few weeks and now feels "an awful lot worse" than the last major correction in the early 1990s, David Ritchie, chief executive of Bovis Homes Group Plc, said on Wednesday.
The comment came just before the Bank of England's interest rate-setting committee began its monthly meeting and after over 3,000 job cuts in the past 10 days at Barratt Developments Plc, Persimmon Plc and Taylor Wimpey Plc.
But there was some better news from Bovis which said it did not as yet expect any big writedowns of the value of its land holdings, although it will cut 400 jobs at a cost of 2 million pounds ($4 million) to save 10 million pounds per year and proposed slashing its dividend to 10 pence from 35 pence. Housebuilders' share prices have collapsed this year, partly on fears of big writedowns on land bought at the peak of the housing market. The mood worsened on June 30 when indebted Taylor Wimpey announced a 660 million pounds writedown.
Bovis shares, which peaked at 1,220 pence in April 2007, were up 1.2 percent at 321.25 pence at 0930 GMT. Redrow, which is cutting 350 job at a cost of 3 million pounds to save 15 million pounds per year, said it would significantly reduce the value of its land holdings and was reviewing its dividend policy.
Its shares, which had underperformed other housebuilders by 30 percent over the past fortnight, recovered 14 percent to 109.5 pence. The stock peaked at 737 pence in January 2007.
A 10-year boom in Britain's housing market began slowing last summer before the global credit crunch choked off the supply of cheap and easy money that had helped triple prices in a decade. Prices have fallen for several months as competition in the mortgage market all but disappeared and availability dried up.
The Bank of England said on Wednesday the cost of a two-year fixed-rate mortgage rose 0.37 percentage point in June to 6.63 percent, the highest since February 2000. Redrow Chief Executive Neil Fitzsimmons said consumers' lack of confidence was now having a bigger impact on sales than their difficulties getting a mortgage, adding reservations in the six months to end-June were down 55 percent.
Fitzsimmons said that until Easter the lack of mortgages was the main factor hitting sales but since then the biggest issue was people's general concern about the economy turning into fears for their own jobs.
Mutually-owned Nation-wide Building Society's monthly consumer confidence survey on Wednesday returned its lowest headline reading since the series began in May 2004, which the lender said was not surprising given reports of rising inflation rates, weaker economic growth and falls in house prices. The biggest change the survey found was people's view on the economic outlook with 53 percent of respondents expecting things to be worse in six months' time, up from 46 percent in May and 29 percent a year ago.
But some detail in the survey was less downbeat with falling confidence doing little to alter Britons' spending plans. Redrow sold 3,925 homes in the year to end-June, down 19 percent on 2006-07. The average selling price fell 2 percent to 157,000 pounds ($310,000).
Bovis's completed sales fell a third to 851 houses at an average price down 4 percent to 196,500 pounds. Citi analysts said it saw little reason to change its forecasts with Bovis expecting a similar pattern to volumes for the remainder of year.
House price growth had been driven by demand - the government estimates the number of English households is outgrowing housing stock by 38,000 every year due to immigration and more people living alone. Analysts see this cushioning the fall in the longer term.
Landsbanki analyst Simon Brown said: "The current position is out of the control of Redrow and its peers and shows no sign of abatement. "It will be interesting to see what Barratt have to say tomorrow (Thursday). One suspects a rather more effective sales effort will show its benefits even in this market," he said.
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