Morning, everybody. I've got to say, I'm absolutely delighted to be talking to you for the first time as the Chief Executive Officer of MJ Gleeson PLC. I would say, what are we? 6, 7 weeks in that, I am having now settled in, even more excited about the potential and prospects for this fantastic group. I thought I would perhaps start with just some, if I could get this working, some initial observations on the business. This seems to have stopped moving the slides. Don't know why. Just bear with me. There we go. Yeah, some initial observations. The group is blessed with some great people.
We've got a skilled and cohesive, senior team, several of whom are in the room this morning, and a culture that develops and promotes our brightest talent throughout the organization. We've got an excellent land bank, and we're seeing, good, a good stream of good opportunities coming through and absolutely winning our fair share. We've got an excellent product. We've, we've refreshed the product. It's now simpler to build, but, it looks and feels superb. It will absolutely, stand toe-to-toe with any of our relevant competition. The, the business purpose is absolutely sound. I'm very confident in the, in the fundamental model, and we've got huge, market potential ahead of us.
We have announced yesterday to the team that we're launching a restructure of the business in part to rightsize us for the current market conditions, but much more importantly, to set the foundations for exciting future well-controlled growth. In Gleeson Land, we've also got a fantastic portfolio of sites and opportunities, and again, a really strong talented professional team. We've got a great new MD in Guy Gusterson, who's here this morning, and superb prospects for medium-term growth in that business. Quite as you can tell, we're gonna be pretty busy over the next two or three months.
We are looking forward to inviting you to a capital markets day sometime early in the summer, where we'll be able to share with you in a bit more detail our medium-term our medium-term plans. Turning then to the first half, clearly impacted heavily by the effect of the mini-budget along with all of our peers, and the havoc that that wrought in the mortgage market and the impact on confidence. That effect on results was compounded for Gleeson by our low brought forward position, which was kind of structural. It was an intended place, but Stefan will talk a little bit more about that in a few moments.
What we've seen since then, is that, leads are strong, much improved, confidence is gently tentatively recovering. The net reservation rates, I would say, are consistent with a recovery, but it's far too early to say that that's conclusive, if that, if that makes sense. We'll just have to see how that plays out. We are seeing mortgage rates reducing, as you're well aware. It remains in almost every case, cheaper to buy a new Gleeson home than to rent. Selling prices remaining remarkably robust. No real pressure to reduce those headline prices. We are using and making more use of modest incentives, but they're limited and very much targeted.
Bringing all of that together, whilst we're still giving ourselves a landing zone for where we expect the full year to end up, we are pleased to narrow that range this morning down to somewhere between 1,650 and 1,850 units for the full year. Over in Gleeson Land, we continue to see strong demand for our excellent product, obviously located in the higher value south, southern parts of the country. As a bit of a spoiler for the full year, we've already, delighted to say since Christmas, concluded on 1 transaction, and market put out a second excellent site in Wiltshire to the market.
Both of those are at prices that underpin the fact that there is still very strong demand out there for our prime development sites despite what others might tell you.
As I referenced, we have yesterday announced to the team that we are launching an organizational restructure with the overriding aim of getting the business tight and lean and fit ready to deliver the next phase of growth. I suppose it's the lull in the market has been to our benefit in some degree, in that it's taken the pressure off the sheer volume of build, and that creates a real nice moment for us just to reset. We're looking to deliver real clarity and control for our teams so that as we grow, we can be absolutely confident in our ability to grow whilst continuing to deliver high quality of product and customer experience.
Importantly, we're maintaining our capability and our capacity in all of our regions. We're not closing any offices, and we are continuing to buy land in all of our regions. We're going to re-run those 9 regions using 6 regional management teams, and those management teams will be organized into 2 divisions rather than the current 3, and you can see on the slide how we're doing that. Those regions will be supported by lean, focused, and professional central services, and each region will be organized on a standardized format, all of which helps that clarity and control. Really vital that every region is able to operate at an efficient level.
The effect on people numbers, if you take the position, say back, say in November when we, when we brought in our freeze on recruitment, the actual reduction from that point, will be about 15% of the, of that number, which is 140-150 roles. However, following the freeze on recruitment, with natural attrition and of course with removing from the business, agency and temporary staff, I'm happy to say that probably two-thirds of that number, have already left the business. The actual process, which is never a pleasant thing, but the process itself is will only result in some 40 or 50 redundancies.
At that point, I will hand over to Stefan to take you through the numbers. Stefan?
Excuse me. Thank you, Graham. While the first half results were lower than prior year, they were very much in line with our expectations. The group delivered turnover of GBP 171 million and profit before tax of GBP 16.1 million.
I'm glad that happened to you.
Right. Okay. I will take you through the divisional operating profit on the next few pages in a bit more detail, but to highlight a few additional points from the income statement. Interest cost was slightly higher at GBP 700,000. We did have some drawings on the bank facility, small drawings during the period. Our tax rate of 20.4% reflects our expected full year tax rate. You'll remember corporation tax is rising from 19% to 25% in April. RPDT, that's the Residential Property Developer Tax, commenced April last year at 4%. Of course, we take advantage of some Land Remediation Relief on the remediation costs on our Brownfield sites that slightly lowers the average tax rate.
Turning to Gleeson Homes, turnover was higher, 11% higher, driven by very strong average selling prices, which more than offset the small reduction in volumes. Average selling prices up 15.6%. The underlying price was up 11.2%, which was slightly higher than regional market pricing increases. Most of the difference between underlying prices and the headline 15.6% increase was driven by a different bed mix. Our four beds during the period were 13% compared to 9.3% of our sales in the previous year being four beds. A slightly richer mix. Gross profit was up 5% just over GBP 46 million. The gross profit on every home sold increased by GBP 4,400 to GBP 51,500.
However, the gross margin percentage was lower at 27.7%. Whilst, as I say, underlying selling prices were quite strongly higher, we did see quite significant build cost inflation in the year, 10.3%. Of course, with the slowdown in demand, site durations are extending, so costs have increased a little as well. Overhead costs were significantly up, GBP 6.4 million. That was driven by three elements. There was strong growth investment. We increased head count by 18% year on year, and we opened a new regional office in West Yorkshire, which was fully effective from the first of July, fully operational from the first of July.
We had, obviously, pay increases, which is circa 6% on average, and we were operating on more sales sides, so we had increased sales and marketing costs. Just on that last point, I've mentioned it before, but we take quite a conservative approach to how we recognize sales and marketing costs. We recognize them through the income statement as soon as they're incurred, unlike many other house builders who typically put their sales and marketing costs to as a site cost. They capitalize it, and then it's charged through the P&L as homes are sold. We recognize it much earlier. Just bear that in mind. Excuse me. Forgive me. I'm a little bit ahead of myself. Graham explained the operational restructuring that we are undertaking.
A strong positive element to reorganizing and structuring the business to be able to grow, continue growing from this position in a well-controlled and sustainable way. That will take GBP 4 million off the current annualized overhead costs, and there will be a one-off cost of GBP 2 million, which will be recognized in this second half. The increased overhead costs more than offset the increase in gross profit, resulting in a reduced operating profit of GBP 18.2 million. Operating margin also fell to 10.9%. That 4.1% reduction was really driven by two things as you've seen. One third by lower gross margins, two thirds by the higher overhead spend, which was spread across and recovered across the lower volume and lower revenue than we expected.
Despite that, return on capital employed was still pretty strong at 24%. As Graham said, I'm gonna take you through the forward order book. Our forward order book has reduced significantly in the last 18 months for 2 reasons. Firstly, as you'll remember, we've talked about it, James and I talked about it last year. We have been releasing plots for sale much later in the build process, and we were doing that for 2 reasons. Firstly, to take advantage of very strong price increases. You release later, you capture more of that price increase. Also it improves the customer journey. They have a shorter time to wait between reserving and moving into their home, which improves the journey.
A second reason for that fall in the forward order book is the halving of net reservation rates in the sector. Average rates have fallen by half, and our rates fell by a half between September and December. We enter the second half with a lower forward order book than we like, and that makes our full year volumes, our second half volumes and our full year volumes, much more sensitive to the rate of net reservation that we're experiencing now and over the next 10, 11 weeks. Gleeson Land. Gleeson Land had a typically quiet first half. You'll remember that business typically has a very strong second half, and quite often that's a very strong Q4. That compares to...
With one deals, one site sold, gross profit of GBP 3.1 million, which compares to the first half of the previous year, which is a very strong first half. We sold three sites. Gross profit was GBP 7 million. Overheads were up slightly in the first half. We employed another two senior land people. We're investing for medium, long-term growth in this business. We do see really strong long-term growth potential in Gleeson Land. For the first half, Gleeson Land reported a profit of GBP 1.4 million. Return on capital employed was slightly lower, but that was largely due to the lower first-half profits and the unusual balance in last year's profit between first and second half. Turning to the balance sheet.
As planned, inventories increased significantly over the period to almost GBP 327 million. Land WIP increased by GBP 17 million. We own more sites and more plots. Build WIP increased significantly by GBP 63 million. That build WIP increase was driven by more sites. We had 88 sites a year ago, we now have 92 at the end of December. Actively building on 92 sites. Sorry, we actively building on more sites. Build cost inflation, which over the past 12 months has been over 10%. Very importantly, which we flagged last year, we're making significant investment in work in progress on sites. Especially as we run up to the end of this financial year and we prepare for the transition to new building regulations. We'll talk about that a little bit more later.
As a result, average WIP increased to GBP 2.2 million per site. Land credits increased to GBP 3.7 million. We acquired a couple of large sites with some of the payment terms deferred. Other assets reduced by GBP 33 million. That was largely driven by lower receivables in Gleeson Land, and the unwind of a corporation tax debt that we had a year ago. Other liabilities increased by almost GBP 27 million. That was driven by the GBP 12.9 million Building Safety Act that we bucked in June last year, and increased trade payables and accruals as we increased build activity and increased the number of build sites. We ended the year with a healthy cash balance as expected, GBP 13.5 million.
Looking at cash flow, working capital increased by GBP 29 million, driven largely by this increase in Gleeson Homes working capital. We now have more substantial starts, more foundations laid, and more WIP equivalent on our sites than we've had, and we're in a good position as we head towards the end of June and start to transition to new building regulations. Finally on dividends. We are declaring an interim dividend of GBP 0.05 per share. Paid shareholders who were on the register at the end of business on the 3rd of March, it'll be paid on the 3rd of April. As a reminder, if you remember last year, 18 months ago, we announced a completion of a review of our capital allocation policy.
We increased our dividend earnings to dividend cover range to between three times and five times, so dividends would be covered by earnings between three times and five times. That remains in place. The final dividend to be declared in September will be determined by earnings and that dividend cover policy. Thank you. Hand you back to Graham.
Thanks, Stefan. The operational review, starting with Gleeson Homes. It's a properly inspiring vision. Building homes, changing lives. I would say, I've been struck, very positively struck as I go out and meet people around the business, I have tramped through a lot of, tramped around a lot of building sites, as you might imagine, in the last 6, 8 weeks, including and I will get Mark Knight back for this, taking me to Cumbria in the second week of January with sideways rain and hailstones that big. No, fantastic to see it. That mission infuses and enthuses the our people right throughout the organization. It's very powerful and really good to see. The big question of the moment.
Net reservation rates, what are, what are we actually, what are we actually seeing? Well, just to kind of give you a picture of how the year seems to be, seems to be playing. In that first quarter, reservation rates were similar, just a bit ahead of the prior year. We were achieving 0.51, which was, you know, consistent. If you remember, things were steadying down a bit, but that was, that was a manageable, sensible rate of sale. The mini-budget and the effect on the mortgage markets, catastrophic headlines and what have you. Gross reservation rates plummeted of course.
Cancellations spiked, and we dropped to, as you can see in the 10 weeks up to Christmas, a rather miserable net res rate of 0.25. What we've seen since, a bit of a slow start in the 1st week or 2 of January, but over the last 4 weeks, that net res rate has doubled to 0.5. As I said, that would be consistent with a recovery. It's a bit below where I would like it to be. January and February should be, our strong, Well, not strongest, but very strong selling months. That is, a decent rate of sale. It's not yet. It's not linear.
I'd be lying to you if I said, "Yeah, it's getting better week on week on week." My sense is that not just for Gleeson Homes, but for the industry, it's a bit tentative. Some weeks improving, some weeks it cools off again. That's why I do emphasize consistent with a recovery. I'm happy with where we are, but not yet conclusive. If any of you has a crystal ball, that would be great. I would just caution against over-focusing on the difference between January this year and January last year. We've given you that comp. Remember, January 2022, I think the entire industry was selling faster than it could build. It needed to come down from there. Just to say that comp...
The sort of 0.91 I suspect is not entirely valid. Just summarizing ops for the first half. We opened 3 new building sites in that first half, and we were building on an average of 87 sites during that period. We were selling from an average of 66 outlets. What we're doing right now is sensibly delaying the opening of new build sites. Obviously, you get a significant spike in working capital when you open it up, when you put in the initial infrastructure. We want to be able to see our way to recovering that working capital before we go off and invest GBP millions in opening up the site. We're being...
We're watching this at a very rigorous and granular level. Why? What we don't want to do is to impede or impair our ability to deliver into the recovery as and when that comes. It's almost a day-by-day, certainly a week-by-week exercise to make sure that we are controlling the WIP, but vitally giving Mark the cash to get on and get those build sites opened and those sales outlets ready. The land bank is in very good shape, as I said. We're slightly up on where we were to 16,500 plots on 168 sites.
That equates to about eight and a half years supply, and it's at a very healthy price per plot of GBP 13,000, which is not something I recognize from my recent past, and a very happy place to be. I mentioned earlier that we're refreshing our product. Mark has done a great job here, overall, what we've done is simplified the appearance, but I think improved it in a number of ways. It's actually a more, in my view, a more attractive product, which improves the appearance of a Gleeson site and the experience of the owner of a new Gleeson home. We've done a number of things. We've
We've enhanced both our standard specification and our range of options. We're not, by the way, pushing massively upmarket. These are small changes, which I can talk to you in detail, and Mark could talk to you for a long time. If you'd like to discuss that, we will. These are small changes just to enhance that product and make it really feel sharp for the new purchaser. Slight improvements to kitchens and to bathrooms, and to the options that the customers can add. Interestingly, I'll show you in a moment the improvement in our sales of extras. A lot of these enhancements are not actually costing us. We're getting the customer to pay for them.
Of course, the margin is much higher on sales extras. Really, thoughtful and insightful in improvements. We've also broadened our range, our palette of elevations, if you like, which again, just creates a bit more interest on site, and that product really does look superb. I hope that when we invite you to the capital markets day in the summer, we'll try to take you somewhere where we can show you that in the flesh, as it were. We're really well advanced on the requirements for future homes. Great technical team participate, and our guys are participating fully on the Future Homes Hub, playing a strong role in that.
We're actually deploying air source heat pumps as part of our solution to the Part L requirements, which obviously kick in in, I think, June or July this year. We're obviously on with that technology. We've actually sold some homes with air source heat pumps in them. It won't surprise you that we're keeping in very close contact with those customers, so that we can learn the lessons of that implementation, and where there are things that we can tweak or change to improve the customer experience, we'll absolutely be doing that, so that we optimize the position when we roll this out at scale.
Also working with Mark and the team on some interesting ideas around both site layouts and slightly tweaking the range of product. That will enhance the viability prospects for our land buyers and again, the experience for our customers. Very excited about what we're doing with the product itself. However. The product itself does remain affordable. Just how I want to be very clear that it remains and will remain the critical case that a couple earning the National Living Wage will be able to buy a house on any Gleeson site, and that's a realistic and live proposition, not a sort of, you know, just one bed at the end of the site.
It's a genuine proposition. Our land buyers are very clear on that. The affordability does remain strong. The average Gleeson purchaser is spending just 25% of their take-home pay on their mortgage, compared to the national average, which is closer to 40%. The average selling price of a Gleeson home is some 30% lower than the average selling price of our peers within our regions and something like 45% lower than the national average.
Of course, the pressure in rental markets is only increasing, and it remains the case in almost all of our locations that it's cheaper to buy a sparkling new Gleeson home than it is to rent. As we said, it's good to see that competition is returning to the mortgage market. It seems each week we're seeing that the banks are improving those terms. We're seeing both pricing and availability are improving. Good to see also that we're not picking up any significant decline in interest from the end of Help to Buy. It's very much the case that the challenge for our prospective customers is not affordability. It comes back to that key thing of confidence.
As I said, leads, website visits to sites all significantly up on what we were seeing at the end of last year. It's all about that having the confidence to convert. More generally, of course, at our lower price points, the absolute challenge of raising a mortgage is simply lower. Sorry, having the equity to support a mortgage is simply lower in absolute terms. As I said, our selling prices remain firm. We're not seeing any particular pressure to reduce them. We are increasing our use of incentives, as you'd expect, but not to a particularly troubling level. As you can see, the average was about GBP 2,000.
You're sort of in the range of 1%-2% there. We are, we have modest discounts that our teams can offer. Modest incentives that our teams can offer without reference. Anything above that, and any more significant discounts, if you're sort of pushing up towards 5%, well, that's gonna come across Mark's desk. It's targeted and very, very limited. I mentioned earlier the improved range of options, and I'm really pleased to see that the extras, the sale of extras, is increasing. We reached in the first half an average of GBP 3,250, and that's quite significant.
You know, that's the average across all of those 894 sales. When you compare that with our average selling price, that's quite a significant, quite a significant number. That's really, it's good, it's good for our customers, but it's good self-help, the improvement in that range of options that we offer. Interestingly, even with the pressure that we've seen in the market, that hasn't come off. Year to date, we're still GBP 2,700 on average. Really pleased to see that level of extras, and it's certainly an area that we're focusing on and enhancing still further. What are we actually seeing?
What's the context for that, for that, the range of 1,650 - 1,850? I thought it might be helpful just to give you some granularity on that. As I've said, Sorry, my screen just disappeared, but I'll look at that one. No signal is the message for that slide. What we are seeing, web traffic has significantly improved, as have visitors to site. The issue is all about confidence to convert into an actual purchase.
To give you that context, if we were to hit the bottom of our range of 1,650 units, we need an average of 0.37 sales per site per week to hit 1,650. To hit 1,850, we need an average of 0.61 units per site per week. Our current, our average over the last four weeks has been 0.5. I don't have a crystal ball, but you can see that that's why we're reasonably confident about that range. Turning then to Gleeson Land.
It's perhaps ironic that the increasingly burdensome planning system is which is exacerbating the scarcity of the prime development sites in key areas of the country where people want to live. Of course, that as I say, exacerbates the scarcity and enhances, in fact, the opportunity for a business like Gleeson Land. We're very excited about the potential for that business. It is a top 4 promoter. The recent corporate activity that we've seen in the last 12-18 months, we think has actually enhanced the appeal of Gleeson Land because of its perceived and real independence. The model is strong. As the investment of working capital is not significant.
We have a very high success rate on planning, as I'll show you. It's interesting that land promoters actually continue to deliver some 40% of large sites to house builders. As I said, it's undoubtedly true that the lack of supply is supporting prices in that area. We see, we continue to see, as we bring sites to market, good interest from smaller house builders, from housing associations, and indeed, from the majors, despite what they may be telling you. We see good medium-term growth potential in this business. The portfolio is excellent. As I say, planning just gets more and more difficult. It is a real headache, but we do have a superb team.
I'd back Guy and his team to deliver any consent that's available out there. They will find it, and they will get it. As you can see, we achieved 4 permissions in the first half, which is fantastic. We submitted a further 4. We've currently got some 16 sites awaiting a decision. As I say, high confidence in the prospects there. Just an overview of the portfolio, we currently have some just under 19,000 plots on 71 sites. We have 1,500 plots on 6 sites which have some form of planning permission. We're in a good performance.
We have confidence for the second half, but even more confidence about the medium-term growth prospects for that business. When we get together in the summer, I'll certainly be asking Guy to share with you some of his good ideas around how we can continue the development of that business. To the summary and outlook. Good to see the machine is holding me up to the last slide. We are seeing initial signs of recovery, but the pace and strength of that recovery is as yet uncertain. We expect to deliver somewhere between 1,650 and 1,850 units for the full year. Momentum is building amongst potential customers with mortgage rates coming down.
It remains cheaper to buy a new Gleeson Home than to rent, and it's all about having that confidence to convert. Finally, as I said, we're launching a restructuring of the homes business, that is in part about right-sizing us for the current market, but much more importantly, putting us in a great place to deliver on that opportunity for future well-controlled growth. Thanks very much for listening. At that point, I would like to invite any of your questions. That's me. Adrian, do you want to? Oh, sorry, Greg.
Call it.
Go for it.
Thanks. Yeah, Greg from Singers. 3 from me, please. Can you just talk a bit about the profile of land sales in H2 when you accept those to land? On homes, you obviously intentionally slowed down the rate at which you forward sell in the build schedule. Has that changed as a result of the current market? Thirdly, on extras, what's the margin profile on that?
Yeah. Okay. That was the profile of land sales in H2 in Gleeson Land.
Yeah.
Yeah. Well, it's not something that we actually give a specific forecast on. I mean, if you like, I can ask Guy to give you a bit more detail on the circumstances. We have a number of sites, we've got one that we're currently marketing, and one that we're about to launch the marketing, but it's really all about the planning that we're expecting to achieve in sort of the next couple of months, which will determine what's available for to take to market in that fourth quarter. We don't really put out a specific forecast on the profile of those sales. That's where we are.
I think, you know, consensus is in a good place providing the planning comes through, as we're currently intending. On Gleeson Homes, your question was have we changed the profile on-
Yeah.
on forward sales? Well, I think to some extent, that corrects itself because, go back to my comment on what was happening in the, the whole market, in, sort of, I suppose it was, the end of 21 and through to the spring of 22, whereby, demand was just much higher than any, than the rate at which people could build. The whole industry, I think, was faced with a, with a challenge of, look, do we just keep And prices of course were increasing, quite significantly at the time. The whole industry was faced with do we just keep selling and our forward order book grows and grows, and we say, you know, how far down the field do we want to sell?
How many months in advance do we want to sell? I think that has self-corrected at the moment given the position of the market. We're not having to make a decision today on, look, do I wanna sell that plot that Mark can't build till nine months' time? It's less of an issue. I think that's kind of self-corrected. On extras, I would say the margin, Mark, probably kind of 40%-50%. I was gonna say 40. Mark's saying 50, so I'll hold him to that. Adrian?
Adrian. Peel Hunt. Two for me. On slide 20, you've got the reservation rates, and you. They were 0.9 this time last year, and you made the observation that, you know, that was an elevated number. Would you be able to provide sort of what a typical reservation rate would be at this time in the year? Then the second one, just before I forget, 'cause I'm terrible at that. On slide 14, you talked about increasing WIP, being driven by the increase in the number of substantial starts, presumably in relation to Part L. What kind of level is WIP likely to be by the time we get to June?
I'll let Stefan have a think about the second of those questions. Just on reservation rates. I mean, for me, to be entirely comfortable, I think we'd want to be at a 0.7, 0.75 for January. That would be, you know, the business absolutely ticking along, and January being one of our higher selling months. Who knows how it, where it should be for now, because January doesn't normally follow the kind of Armageddon that we saw in the final quarter. I'm not panicking that we're currently at 0.5. It just depends on where it goes from here and how that confidence picks up. 0.7, 0.75 would be a good rate for January, I think.
Yep. On the WIP question. It'll be a mixture of things by the end of the financial year. We'll be on fewer build sites, because we are pausing, at least for the time being, opening new build sites. We will have fewer sites, but we will have much more WIP on those sites. We are busy. We are busy putting infrastructure in and making substantial starts to constructing homes. Just to put some kind of numbers on it. At the moment, we have just under 3,000 substantial starts, homes substantially started. I'd expect to increase that by another 500 by the end of the year.
As a result of that, the GBP 2.2 million build WIP per site that we had at the end of December, expect that to increase to possibly GBP 2.5 million-GBP 2.6 million by June, during this year.
I think the gentleman here was just before you, Charlie. You got the microphone, go for it. Sorry.
Sorry. That's no problem.
Possession nine-tenths, Charlie. There you go.
Exactly. Yes. Charlie Campbell at Liberum. A couple of questions really. One is I just wondered if you could help us in terms of seeing, I suppose in terms of the language, seeing sort of new customers, people who might have kind of been trading at higher price points in the past. What you're seeing in terms of more affluent customers coming towards you, just any evidence or kind of sort of color to help us understand that switch would be great. Secondly, you've not said much about sort of planning delays to the Homes business. It'd be very easy to think that that's more of a problem in the south than the north.
I mean, is it, is it as straightforward as that, or are there still planning delays in the north as much as the south or a bit less? How do we think about planning delays in terms of site openings going forward in the homes business?
Yeah. In terms of... Thanks, Charlie. In terms of new customers, we are both anecdotally and I think statistically, we are definitely seeing interest from customers who would be typically buying from one of our more expensive peers. The shift in the mortgage, the mortgage rates have improved, but there has been a shift. You know, property is more expensive than it was.
Undoubtedly, we're seeing people who previously might have been looking at, one of our more expensive peers, who are now looking over the fence and saying, "Well, actually, there's a very nice, very nice Gleeson Home there that I can now, using that same budget, afford a Gleeson Home where I can no longer afford the one I was previously looking at." I think that we've got that stat in terms of.
Yeah. We looked at. We collect a fair amount of data on understanding our customers. If you look at. If you rank our customers who've reserved over the last six months compared to the customers who've reserved a year ago, a year earlier, in terms of their earnings, the top 10% are earning 15% more than the top 10% earned a year ago. Might take a few moments to just process what that means.
What that really means is that, those What we call value-driven buyers that would have typically bought a more expensive home for, from another house builder, actually looking at Gleeson Homes and going, "Well, you know, like, it's, this is a high quality home which is gonna cost me substantially less." We're seeing actually the shift in the demographic, a little bit of a shift in demographic, so that the average income of our buyers, certainly the, the higher earning customers, has increased really significantly. We're seeing it throughout, you know, slightly lower loan to value numbers, slightly higher deposit to our customers, still got healthy deposits. That demographic shift is absolutely definite. We were anticipating it 1 year ago. We've actually seen it in the last 6 months, really significant.
To your second question, Charlie, I'll ask Mark to comment on that as well. No, planning is no easier in the North. It's no easier anywhere. We are seeing planning delays. Hopefully, the reason you don't hear me moaning about it is 'cause it is what we do. You know, it's the market we operate in, and you don't want me standing here telling you how difficult life is. It is tough. We've got a very strong land team, as I said. I do think we're good at it. We're good at getting close to the local authority, good at understanding what they need. Of course, the product that we're delivering is the product that they really do need.
We're also regenerating a lot of brownfield, which again is something that the local authorities are keen to see. Mark, do you wanna give just a minute on what we're specifically seeing in terms of planning and policies?
Thanks, Greg. Well, like the industry, NPPF, planning change, government policy change, that's with us now and obviously coming down the road. We've set our team up to make sure we can deal with that at a granular level. We've recently acquired an internal senior ecologist because of BNG. That approaches us in November 2023, as you're all aware. In the main, LPAs are trying to work where they're not committed to BNG as an example. They wanna get planning consents in, actually. We're seeing some real positive engagement with a large proportion of local authorities that actually don't want to commit to policy on that until they're absolutely demanded to do so. That said, certain locations are more stringent than others.
Leeds is an example where they've really gone in hard, and they do with everything around policy. Sort of blockages wise, in terms of to risk to planning consents at site level is probably mainly kept around Tees Valley area where nutrient neutrality is still heavily in the ether. We're finding ways around it. Some of it can be done and can be worked on sites. Where it can't, we obviously push those deals backwards. They won't go anywhere because they're dealing with the simple facts of where policy sits. I think nutrient neutrality as an industry is something that we're still all working out at regional and city and town level.
Everything else in terms of where BNG's coming through in November, you've got a lot of planning committees wanting to get consents through. The other side of it is that affordability piece and the product. We used to be a business several years ago that was quite aggressively engaged with planning authorities, and I think we've said this for the past few years. We are now very collaborative. We're working with a product that's workable to their needs and demands, and we're working tirelessly as we speak in terms of that transition into space standard house types. Our old size product is gonna be defunct in the next 12 months. The new product coming through is exciting the planners and more importantly, the working committees around them. Ward members are getting spoken to.
It is a problem. It's more policy driven, I think. I think the wider base, and I think Greg would jump in, the SLAs that each LPA are pushing, they're using some of the government current language to say, "Right, actually, we were gonna commit to a plan, and now we've got so many problems we're not going to." That could create problems, and there is nervousness around it where that takes us, and Greg's probably more qualified than me.
Go on.
Thanks.
Hi, Rob Gentry at Berenberg. Just a couple of questions. I suppose given all the changes in affordability and market dynamics you've seen in the past few months, have you seen or do you expect many changes in the competitors playing in these markets in terms of people pulling back or other companies seeing it as an opportunity in the private market or listed market? Secondly, just on organizational structure, clearly taking some cost out and kind of, I guess reducing that the management overhead in there?
If you're kind of looking at the medium term view, do you view that as a temporary change to get through the current market conditions, or do you view it as the right base for a structure to kind of potentially scale the business from, you know, materially from here on a multi-year view? Just your thoughts around that'd be helpful. Thanks.
Okay. Thank you. Competitors, I'd have to say not significantly. We clearly have competition and it depends, a lot depends on the sites. You know, locations, and the appearance of the site. I think Most of our peers, you know, if you'd been asking me about the types of sites if I was sitting here in my role a year ago, it's all about buying absolutely prime sites in prime locations.
One of the compromises that we make, why we're able to do what we do, is that we will take on those difficult secondary sites and secondary locations, and we make a virtue of it. Guess what? We're able to sell houses very effectively in those locations. If I'm Bovis, I'm not particularly wanting to build in Acklam Gardens in the center of Middlesbrough, which is a great site for Gleeson Homes. We do have competitors obviously, Keepmoat compete with us, Vistry Partnerships compete with us, and you can imagine I enjoy that one. I haven't seen a surge, if you're asking me, am I seeing the majors all coming over to try and eat our lunch? Not really.
No, no real change in that regard. Organizational structure, good question. It's very much about the look forward. As I say, it is, if you almost kind of coincidental that it's helpful to trim ourselves, you know, maybe lose a few pounds to make sure we're fighting fit in the current market. What we're doing, the standard structure for the regions, the role clarity, and the clarity as between the regions and the center, and trying to make sure that each of the regions is operating at an efficient level.
This is absolutely about the future and making sure that as we start to open more sites, as we start to push that, put our foot on the volume accelerator, again, we can purr away rather than creaking and groaning, and we can do it knowing that we've got the people and the systems and processes in place that will ensure that as we accelerate, we're not compromising on product quality or quality of customer experience, and that's really what we're doing.
Okay.
Sam.
Morning. Sam Cullen from Peel Hunt.
Morning, Sam.
I have 3, if possible. First one's on pricing.
Mm-hmm.
You pulled out, I think, Stefan, the change in the mix this year. Should we expect that to change going forward? Is it gonna get richer or less rich going forward? Also, I guess, a couple of comments really around kind of mortgage capacity of your, of your buyers, how that's shifting post-April and, kind of a new cheapest home on a typical Gleeson site would be for a, for a National Living Wage couple would be helpful.
Secondly, on your question about kind of selling further forward than perhaps you might ideally want to a year ago, did that involve any sort of remediation costs that you may have incurred because you didn't hit various targets or the build quality suffered a little bit and so you had to kind of go back and fix things that you may not, mistakes you may not make as the build rate slows, or normalizes going forward? Just lastly on the land buying piece, you've indicated you've pulled back from land buying. If we see reservation rates continue to stabilize or improve, when do you need to get back in the land market? How comfortable are you kind of pulling through your existing land bank to serve, the volume needs?
Just on a technical point, Sam, I think that was four. You might wanna make sure.
As a subsection.
Yeah. I will take the... I'm not sure what... You've confused my numbering completely now. I'll talk about pricing. I'll talk about selling further forward and the land buying. I'll let Stefan talk about mortgage capacity if that's okay.
Yep.
What do we see on pricing? Really important to distinguish. The 15% increase in ASP, but as Stefan's already explained, the underlying was about 11%, which is kind of broadly in line with kind of national average, just a little bit ahead, possibly, and some of that to do with those improved extras, which are of course voluntary on the part of the customer. I think it is... It's really important to keep that in mind, because I would hate for there to be some sense of, you know, that we're drifting away from our core market. We're absolutely not, as you heard me say earlier.
Vital to me, the success of this model is about us keeping focused on our purpose and on that core strategy. There is such a thing as an affordable large home, if you see what I mean. One of the things that Mark and I have kicked around, and I don't wanna give away secrets, but we don't build any five-bedroom homes. Actually, and it's getting into a bit of detail, we have customers in certain areas that want five-bedroom homes for particular reasons, not inconceivable. We're kicking the ball around now, we may introduce that. We may expand the range a little bit.
That will obviously push up the average selling price, but it won't be changing the fact that we're selling into an affordable market. Hopefully that is what you were asking. Just on selling further forward, no, I don't think it's It, it's not so much a problem of this isn't a rearview mirror. I think this is something that James and Stefan took a very clear view on at the time. To be fair, the same debate was taking place, you know, in every, around every exec table. You can keep you have a rising market, but you're locking in selling price today and putting yourself under that build pressure.
Of course, it's much more difficult to tell a customer which day they're gonna be moving in 9 months out than it is on a house that's almost ready 2 or 3 months away from completion. Great question. You know, has that meant that you're kind of really running to stand still on delivery? Undoubtedly, with. As I referred to earlier, we had a lot of the sheer volume of build did put pressure on the system. I think the guys did a great job, and we haven't seen, you know, a particular raft of problems coming through from that.
Just on land buying, we're not holding back on land buying at all. Most of our land buying is secured on a conditional basis on getting that planning. If you think about it, the land that we're buying now is for development, you know, starting on site on average, I'm gonna say kind of 12-15 months hence. So we've seen a lot of activity. I see, along with Stefan and Mark, we chair land bid meetings every week. Those have been getting longer, not shorter. Some great opportunities coming through and some great pricing. We are not letting up on land buying.
What we are holding back, right now, and as I say is under the microscope, is just being very careful not to launch in and put in GBP 2 million, GBP 3 million worth of infrastructure on a site where we might find ourselves in three months' time in, you know, that the confidence has worsened. We'd say, "Well, look, there's GBP 3 million that's now gonna sit there for 18 months." That's the decision where we're being cautious, but we are watching it carefully. Stefan, did you want to talk about-
Mm
mortgages and capacity?
The National Living Wage increases, as we all know, in April from GBP 9.50 to GBP 10.42 per hour. If a couple working full-time earning that National Living Wage were to borrow using a 90% LTV and a 4 times loan to value, so not overstretching themselves, they will, in April, be able to afford a home costing over GBP 192,000. Affordability really is there. I mean, it's quite extraordinary. Our average selling price, GBP 186,000, that means they could afford to choose a choice of more than half of-
Yeah
... their homes on, you know, most 3 beds.
Most three beds.
All 2 beds, on some sites, a couple of 4 beds. I mean, affordability is extraordinary strong. As Graham said, you know, we sell at a price that is 30% lower than where the other house builders are selling in our regions. That affordability really now it has a consequence. It puts up costs because people who are payroll costs increase, have to increase because people who are earning National Living Wage or slightly above it also expect that same increase. You know, every silver lining perhaps has a bit of a cloud. Just on the mix question, though, it's a really good question because there will be some mix movements going on.
You remember we were replotting our sites with a 6 years ago with a richer mix of 4 beds and a slightly thinner mix of 2 beds. Still retaining that core two-thirds, 3 bed. We saw in the first half the, let's use the average number of beds, which was 2.9 beds. That was an increase from the first half of last year. I would expect us to stay around that for the time being, maybe increase a little bit. It'll be marginal increase. I would expect a bit of mix in the regional mix. Of course, you know, Northeast prices are a little lower than North, Northwest, which tend to be the highest.
Overall, I would say if prices continue to be flat, which they have been, as Graham said, over the last four months, if they continue to be flat, I would expect that overall our ASP to remain flattish.
Thanks, Stefan.
Adrian. Double dipping.
I only had two, you see.
First time around.
Adrian from Panmure again. Just look, through the presentation, you made a reference to refreshing the elevations.
Mm.
Would you be able to sort of provide, use that horrible American phrase, some extra color in terms of where are you on that journey? You know, have you actually started selling any refreshed elevations? What's the motivation? Is it perceived sort of attractiveness? Is there a cost benefit? Just a sort of general sort of overview in terms of that journey, if that's okay.
Absolutely. With some caution because there is a lot of enthusiasm in Mr. Knight in this. I'm gonna ask him to come back with some detail. The reason is actually if you walk on site, and it's been fantastic for me. Mark and I have walked countless sites in the last few weeks and just the team have got a great eye for this. If I look at the older Gleeson it looks great. Then go to, and I think it is Acklam, where you can see it from, where you can see. No, it was Safari, where you can see the old product on one side of the road and the new. It's just. It's move on.
I guess fashion moves on. It looks really sharp, and we've seen some absolutely spectacular examples. Mark, do you wanna just give a couple of minutes on that?
Yeah. If you turn to pages 2 and 3 of the 3 and 4 of the presentation, you'll see some examples. We, we operate three styles, if you like, Urban, contemporary and rural. You've got contemporary and rural in the in the slide deck. If, if I just look at page 3, that's the contemporary product. At the moment, pre-space standards, we've not plotted too much of this. Places like Leeds and Newcastle and Nottingham are starting to ask for this type of product. You've got your black window profile, doors. You've got clean elevations rather lots of cobbling. You've got a larger visual on its window style. That's generally the contemporary product. Again, we're increasing the color palette of bricks as well as roof tiles.
The rural that you see on page 4, again, you've got a different coloration for the door, a sage conservation green. You've got sweat windows and different window fenestrations, and then simple, sympathetic brickwork styling together with open rafter feet to the roofline, which again, a lot of planners in particular around Cumbria and down the East Coast, which we're doing a hell of a lot on, really work, and again, it adds some real value. Our Urban 21 is a very simple design, clear of details, but a gray door, gray garage door, rather than what you'd see in terms of the old style cobbling, white doors, white windows, white garage doors.
Simple refreshes together with a control change from gravel drives to tarmac drives, which might sound what you're talking about. We've been through a journey on all this, and we're seeing real added value on that front of house impact. Simply, these things are cheaper to build simply because they're cheaper to build from the labor and the time to build them. We're using less product in the actual elevations, and we're enhancing that product. Less is more, I think, is a way to finish off on that one.
Yeah. Yeah, well described. Thanks, Mark. Does that give you-
We are building it on several sites at the moment.
Yeah, we are. I'll say we'll try and take, we'll try and show you in the summer. Does that give you some... Sorry?
Sounds like an Internet search.
Yeah. Yeah. Very good. Any-
Okay, we've got a question from the conference call. Maybe, Sharon, you could take over the conference call.
Certainly. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Andy Murphy from Edison Group. Your line is open. Please go ahead.
Thank you very much. Good morning, everybody. I've got three little questions, if I may. First of all, on the demise of Help to Buy, I assume most of your customers are not in a position to get involved in part exchange. I was just interested to know what activity you're seeing in terms of other replacements to Help to Buy. You mentioned in a presentation one or two initiatives that were at play there. I wonder how much they've taken off with you. Secondly, can you give us a flavor for what your expectations are for build cost inflation through the rest of this financial year and this calendar year?
Finally, just on the improvement in your reservation rate, I was wondering what your thoughts were on the trigger for the improvement. Was it just realization that interest rates are beginning to stabilize and come down? Was it something that you or the industry have been doing in terms of promotion or something else? Thank you.
Very good. Thank you for that. Just going back to that, to the list. Let me take the inflation and reservation rate improvements, and I'll give you my thoughts on Help to Buy and just in case Stefan wants to add anything on that. Taking your taking the point on build cost inflation this year, interesting, and getting that out of John Gilbert, our Commercial Director, as you can imagine is never easy. No, John's, John and his team doing a super job.
As Stefan said, we saw i cost inflation over the past 12 months of about 10.3%, which I think is in line with what most others would tell you. Undoubtedly, that will ease significantly in the current year. There'll be a split there between materials and subcontractors, and there'll be a split within those, within both of those categories.
On the trades whereby they're, you know, broadly selling their labor to you, brickies, and in our case, ground workers, we've already seen some quite significant savings, probably of the order of 10%, because, you know, that is a simple question of supply and demand, and with the entire industry holding back, doing what we're doing, in fairness on controlling working capital, there is simply less demand for those trades. On the materials as well, same point around supply and demand. You know, we went through obviously not as bad as 2021 when you couldn't even get materials. Through 2022, the manufacturers could sell everything that they could manufacture.
They were also obviously suffering significantly from the increased cost principally of energy, also their logistics costs were very, very high. They were passing them on to us. Those underlying pressures in energy costs have not gone away. I think logistics has calmed down a little bit. Certain manufacturers are still seeing significant cost increases in their own manufacture. There you're looking particularly at the guys who use a lot of energy, bricks, blocks, and so on and so forth. That's quite a tense market in terms of those types of products. I would be lying if I said to you, "Yeah, you know, brick's gonna get much cheaper." They're not.
Those guys are still looking for an increase. Again, they have got to be careful because the demand is not where it was, and we have started to see reductions from certain suppliers. I think that will build. The reduction will build over the course of the year. As I say, I could keep kind of sub-analyzing, but if I come back up, I would expect that we will see cost reductions over the current year in aggregate of around 4%-5% is where I would be. John will kick me when I go back to the office 'cause that's, well, unsurprisingly not the number he gave me, but I've factored it for the commercial director's caution.
We are that I think is where we'll, where we'll be. I'll just cover up the questions. Reservation rates, What was the trigger for the improvement? Well, you can probably guess, your guess is as good as mine. What I would say is that, my view is that the fundamentals have not been as bad at any time as the press would have us believe. We had a significant event in the mini-budget which spiked mortgage rates. If you ever any economic factor which happens overnight, and is so dramatic and then is amplified in the press will always scare the consumer. It will stun people into inactivity.
Most people will now, you know, professionals and financial technocrats will say, "Well, you know, kind of we've got a new normal in the mortgage market. It's calmed down," and so on and so forth. And the fundamentals, not as bad as we thought. We didn't go into a recession last year, et cetera, et cetera, et cetera. It takes a while, however, to re-nurture that confidence in the consumer. I think it was always going to be, Christmas was always gonna be a natural fire break. We were never gonna see a pickup post-September. We were never gonna see a pickup before Christmas. It was all about what happens in January. And I think that what we've seen is that people had absorbed the slightly more positive news.
They've seen what's happening in the mortgage market, and they are coming back. I do stress again, I'm repeating myself, it's tentative. You know, reservation rates of 0.5, and they are mirrored across the industry. Others are telling you the same thing. That's consistent with a recovery. We just need it to hold, and we need it to run for a few months before it's conclusive. Coming back to Help to Buy, we are using the replacements. As I think I mentioned, First Homes is a great idea, but it's terribly complicated. It's terribly complicated for the local authorities who have to administer it, and we're really not seeing that taking off in any numbers. We are supportive of it.
We're absolutely trying to work with the local authorities to deliver this. We're finding in most cases that the plots that we would earmark for First Homes, we're selling them before they can actually, before we're actually getting, before the local authority is ready to, for the wheels to turn for us to sell it, with the 30% discount. We are deploying them. It would be great for that to take off. Deposit Unlock is another mechanism. I think, again, consistent with what others would tell you, it's a great product. It's more of an advertising hoarding, so it brings people to the site.
We will do, we will participate in Deposit Unlock, what we're actually finding is that, for most customers, they can get a cheaper mortgage elsewhere. It's a useful invitation. In most cases, they don't conclude with a Deposit Unlock mortgage. They will find a better product elsewhere. That's because, as I've said, as Stefan said, most of our customers are able to raise the equity, the equity share that they need to support the mortgage. I don't know if there's anything you'd want to add on that, Stefan. Well, on the Help to Buy bit, it's been really impressive. Like, customers aren't. You know, there wasn't a rush to get Help to Buy before it closed for new applicants.
Use of Help to Buy had been declining as we approached the end date. In the first half, the forward order book has a handful of Help to Buy purchases in there, only a small handful. We're just not seeing the impact on that element of the decision-making from our customers. Our customers are, you know, the average loan to value has fallen. It was 3.3 a year ago, 3.3 times a year ago. 3.1 six months ago. It's now 3.0. Actually, the level of leverage is reducing. Our customers typically get paid overtime, unlike I suspect anyone in this room. You know, they work for 9 months, so does their partner.
One night a week, every other weekend, they've got their deposit. The non-Help to Buy customers, and we've been tracking this now for a few years, have been coming to us, and they have typically really healthy deposits, 15% deposits. You know, we'd love Help to Buy to come back, but we don't think the market needs it, or certainly we don't.
Okay, thanks for that.
Thank you. No further questions at the moment. Graham, I'd like to pass back to you for your closing remarks.
Very good. Well, thanks very much for coming along this morning. As I say, great to be great to be chatting to you in the new role. A good set of questions. Thank you for that. Gone on slightly longer than I hoped. I hope we haven't made you late, but no, really enjoyed that and happy to carry on chatting over a coffee if you'd like to, if you'd like to stay. Thanks very much.