UK homebuilder Bellway warns of slowing demand

Annual underlying pretax profit rises 23%

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Average selling price forecast to drop 4.6%

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Weekly reservations down year on year

Oct 18 (Reuters) - Homebuilder Bellway on Tuesday warned of operational challenges and slowing demand as mortgage rates climb, leading to flat volumes next year as the housing sector also comes under pressure from a broader cost-of-living crisis.

UK housebuilders benefited from strong house prices and tax breaks during the COVID-19 pandemic but have had to contend with a surge in building costs while homebuyers' purchasing power is squeezed further by rising interest rates as central banks seek to tame inflation.

Britain in September cut stamp duty on home purchases as the new government under Prime Minister Liz Truss sought to bolster demand amid signs of cooling despite an undersupplied market.

Bellway said elevated demand since the start of the pandemic has moderated and new-build reservations were 191 a week in the nine weeks since Aug. 1, compared with 218 a week in the corresponding period last year.

"Given the backdrop of rising interest rates and wider economic uncertainty, the board currently expects to deliver volume at a similar level to the prior year," a company statement said.

The Newcastle-based company built a record 11,198 homes in the 2022 financial year, up 10.5% year on year.

Its overall average selling price is projected to fall 4.6% to 300,000 pounds ($340,560) in the 2023 financial year, Bellway said, attributing the decline primarily to a higher proportion of social housing completions.

Last week Britain's largest homebuilder Barratt flagged a fall in annual profit after reservations plunged in recent weeks.

FTSE 250 company Bellway, which builds everything from one-bedroom apartments to six-bedroom family homes and luxury penthouses, said on Tuesday that underlying pretax profit for the full-year to July 31 rose about 23% to 650.4 million pounds. ($1 = 0.8809 pounds) (Reporting by Aby Jose Koilparambil in Bengaluru Editing by Rashmi Aich and David Goodman)