Bovis and Redrow: More grim news for housebuilding industry

10 July 2008 / by Rachael Stiles
There is yet more bad news for housebuilders, as Redrow and Bovis announce job cuts that will bring the total number of jobs lost in the industry to almost 8,000 – double the amount announced so far since companies started to suffer.

Redrow and Bovis Homes revealed yesterday that they will be cutting 540 and 400 jobs respectively – 40 per cent of their workforces.

This adds to the already grim outlook for employees in the house building business, as Persimmon also announced plans this week to cut 2,000 jobs, and if the trend continues, then 8,000 people could find themselves out of work.

Industry analysts are blaming the unaccommodating mortgage market for the fall in sales, but Neil Fitzsimmons, chief executive of Redrow, said that the industry's decline is due more to dwindling consumer confidence than their difficulty in securing a mortgage deal.

If they are not confident about which way interest rates are going to go, or secure in their employment, then they will not want to invest in such a big purchase, he said.

Rates and fees are rising, and housebuilders are offering various incentives to buyers but to little or no avail – Redrow's advanced sales have fallen by almost half to 1,189 from 2,148 at the same time last year and its average house is now selling for £157,000 instead of the £159,900 it was reaching last year.

Bovis has experienced a 35 per cent fall in completions and is bracing itself for a fall in its profit margin of at least six per cent. Bovis' average house price has fallen from £189,600 to £167,500 in the last 12 months.

In a trading statement issued yesterday, Bovis said that it is facing "the worst market backdrop that the Group has seen for many years". The company hopes to cut 20 per cent off its overhead costs by reducing its workforce.

The statement said that the Group has achieved, "a good quality of profit on those private homes it has sold but has achieved significantly lower volumes of legal completions, largely arising through a severe reduction in mortgage availability caused by the ‘credit crunch’. As previously advised, half year profit will be adversely impacted by this sharp reduction in volume."

Meanwhile, Barratt Developments, which has also been suffering in the difficult market, is expected to announce an agreement with its lenders today which will allow it breathing room on its debt for three more years. Barratt has lost more than 90 per cent of its value since the start of the year, but its shares shot up 38.5 per cent yesterday amid news of the deal.

© Fair Investment Company Ltd