AnnualReportFinancialStatments2023

Annual Report &

Annual Report & Financial Statements 2023 Market overview Cont. Strategic Report Market overview Continued The housing market continues to face a number of significant challenges, including the ongoing rise in the cost of living, driven by high inflation and high interest rates, including increased albeit stabilising mortgage rates. These factors have all impacted on buyer confidence and demand in FY23. High inflation has also driven up build costs, with planning delays and new environmental regulations impacting the supply of land for new homes. Challenges facing housebuilders 01 Interest rates have been rising, but inflation is starting to slow Since the beginning of 2022, the Bank of England has been struggling to calm rising inflation rates. As a result, the Bank has raised interest rates at a rapid pace, to the point that they now sit at a 15 year high of 5.25%. Consumer Prices Index including owner occupiers’ housing costs (“CPIH”) rose by 4.2% in the 12 months to November 2023, which was less than half the comparable increase in November 2022. As a result, the market has started to price in reductions in interest rates, resulting in lower mortgage rates being offered. Mortgage providers have started to lower fixed term rates on the back of slowing inflation, with the average 2-year fixed rate being 4.69% and the average 5-year fixed rate being 4.38%¹. This is a significant increase on the rates seen prior to September 2022, while coming down from the peak seen during the summer of 2023. 1. Interest rates are expexted to rise 7 6 5 4 3 2 1 0 UK Interest Rates (%) Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 (1) Based on a 90% Loan-to-Value at January 2023, Money Advice Bureau. Chart: Bank of England Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 02 Cost of building a home continues to increase The cost of new housing materials has risen sharply since the end of the first wave of Covid-19 in late 2020 and has remained high over the last two years. Costs have started to stabilise in recent months as the availability of materials, which had in part been driving this increase, has started to ease. Labour shortages have also contributed to an increased cost of building a home, with the number of employees in the construction industry down 5% since Q2 2022¹. Furthermore, the cost of additional requirements to meet building legislation, coupled with the Environment Act, will continue to put pressure on the cost of building a home. The Keepmoat Model Keepmoat operates a centralised procurement process and has strong supply chain management. Our standard house types and materials supply contracts help to mitigate build cost inflation. 2. Cost of building a home continue BCIS General Building Cost Index 470 450 430 410 390 370 350 Jan-2019 Apr-2019 Jul-2019 Oct-2019 Jan-2020 Apr-2020 Jul-2020 Oct-2020 Jan-2021 Apr-2021 Jul-2021 Oct-2021 Jan-2022 Apr-2022 Jul-2022 Oct-2022 Jan-2023 Apr-2023 Jul-2023 Oct-2023 (1) Statista, UK construction industry employees 2023 Chart: BCIS, General Building Cost Index The Keepmoat Model Keepmoat builds high-quality affordable new homes at average selling prices well below the average for new builds in the regions in which we operate. We offer support to our customers through shared ownership and First Homes schemes, and have piloted innovative mortgage products such as Deposit Unlock. 28 KEEPMOAT.COM 29