Investment Case

Our Marketplace

The UK housing market started strongly with some signs of weakness emerging during the summer months. Demand particularly weakened in the fourth quarter as economic uncertainty, high inflation and an increase in interest rates impacted consumer confidence.

Mortgage Availability and Affordability

Mortgage availability and affordability came under pressure in 2022, with interest rates increasing materially in the second half of the year. This, combined with the closure of the Government Help to Buy scheme in England, had a material impact on affordability, particularly for first-time buyers. We estimate that the monthly cash cost of mortgage payments for some first-time buyers approximately doubled during 2022² compounded by limited availability of high loan to value mortgages.

There was some stabilisation in the mortgage market towards the end of the year along with a reduction in interest rates, albeit availability of 95% loan to value products remained limited. In Wales, the Welsh Government announced in December its intention to extend the scheme for a further two years until April 2025.

Skilled labour and materials

During the year, the UK construction market continued to see high build cost inflation as a result of material shortages, compounded by the conflict in Ukraine and resulting impact on energy prices. Overall, build cost inflation was 8-10% in 2022. With energy costs having peaked and a weaker outlook for the housing market in 2023, we would anticipate this to soften as we progress through the next financial year.

The shortage of skilled workers, as a result of an ageing workforce and labour migration post-Brexit, also continues to present challenges for the industry.

How we are responding

We have a strong supply chain across the business and we look to make use of Group agreements where possible to keep costs down. Our vertical integration helps to protect us from supply chain shortages, and we are expanding the product range. For example, we added ridge tiles to our Tileworks products during 2022.

To address the labour shortage, we continue to recruit and train large numbers of apprentices and trainees alongside our graduate recruitment programme. We engage with schools and colleges and support subcontractors’ apprentice recruitment.

Planning and regulation

During 2022, new Building Regulations came into effect, with parts L, F, O and S applicable for new developments from June 2022, covering all developments from June 2023. Amendments to Part L require a c.30% improvement in the efficiency of a new home, which will result in new homes having improved insulation, ventilation and more efficient boilers, some may also have solar panels. The Future Homes Standard (‘FHS’), which is likely to be implemented in 2025, requires a c.80% improvement in the efficiency of a new home. In December 2022, the Government launched a consultation into the Levelling Up and Regeneration Bill which seeks views on the proposed approach to updating to the National Planning Policy Framework. While the government has reconfirmed its commitment to delivering 300,000 new additional dwellings p.a., it has recommended the removal of ‘top down’ housing targets and the lack of clarity is causing further delays in a challenged planning system.

How we are responding

The Group is supportive of the objectives to improve the quality of homes and is well placed to continue delivering sustainable and attractive developments through our Group master-planning team. The time taken to achieve planning consents continues to increase, and we are working with local authority teams to help speed up the process. We welcome initiatives aimed at increasing the efficiency of this system. The Group strongly supports the initiatives to reduce carbon usage within the industry and is already heavily involved in the research and implementation of greener building methods through our Low Carbon Homes Steering Group.