Housebuilder makes £25m pre-tax profit with revenue up 14%

Real-time Share Price
Real-time Share Price

Pre-tax profit at housebuilder Redrow leapt to £25.3m for the year to June 2011 as the builder managed to increase the average selling price of its homes through the introduction of its new range of house types.

The profit compares with just £0.7m profit made in 2010, and comes on the back of revenue up by 14% to £452.7m.

The year saw the builder’s gross margin more than double from 3.2% to 6.9% as it rolls out its “New Heritage” range of homes designed for wealthier buyers on larger plots.

Shares in Redrow rose 3.2% today on the announcement.

The average price of homes increased from £149,300 to £164,800 with the number of sales also up 1.5% to 2,626. However, investment in land, particularly in the builder’s new London business drove gearing up to 16%, compared with 11% in 2010.

Redrow chair Steve Morgan said the market will remain constrained until mortgage lending improved, and called for the introduction of a mortgage indemnity guarantee scheme either by insurers or local government, in which losses on the first 15-20% of lending on homes are insured.  

He said: “The outlook for the industry remains challenging, with the lack of mortgage supply and general economic incertitude affecting what is undoubtedly a huge demand for new housing. The under-supply of housing in the UK is reaching chronic proportions as many recent reports have testified.

“It is essential to find a balance between the regulatory risk weighting of higher loan-to-value mortgages and the aspirations of first time buyers. Historically, this gap was filled by a Mortgage Indemnity Guarantee (MIG) provided by a local government or insurance company.

“Generations of home buyers throughout the 20th century benefited from this policy, with 90-95% mortgages being the norm. Unless initiatives such as MIGs are reintroduced, the current low levels of turnover in the housing market are set to stay for some time.”