Housebuilder Bellway said it was facing "difficult times" in the housing market as it unveiled a 3.9 per cent drop in interim pretax profits.
The group said reservations were down nine per cent amid a shift in consumer confidence after last summer’s credit crunch.
First-time buyers have been particularly hit hard by the crisis and are struggling to meet lender demands for higher deposits, said Bellway.
It reported pretax profits of £96.9 million in the six months to the end of January, against £100.8 million the previous year.
Revenue rose to £581.5 million from £576.5 million.
But the firm said its strategy of forward selling helped soften the blow of a tougher housing market, with £670 million worth of forward orders so far secured – 88 per cent of its revised annual target for the whole financial year.
The company has operations across the Midlands including sites in Birmingham (4), Wolverhampton (2), Solihull (2), Bloxwich, Smethwick, Wednesbury, Rowley Regis and Walsall.
Bellway – the UK’s fourth largest housebuilder – said the market was particularly challenging in the Midlands, Yorkshire and the North West.
However, demand and keen pricing in the affordable sector was holding up well in Scotland and the south of England.
The Newcastle-based group, which targets the lower end of the housing market, said it was seeking to tempt buyers with incentives, such as by offering carpets and curtains in the sale price.
That has seen its operating margin fall to 18.1 per cent from 18.7 per cent.
"At the moment, the incentives we are offering cost on average about £4,700 a home," group chief executive John Watson said. "Going forward, margins are likely to come under further pressure and there could be another half-point fall in operating margins."
Bellway said its sales teams were reporting "pleasing" visitor numbers, although this had failed to filter through to reservations – down nine per cent between August 1 and March 17 compared to the same period previously.
The number of houses sold in the six-month period fell slightly to 3,252 against 3,264 in the same period last year, leaving housing turnover up 0.5 per cent to £568.4 million.
The average house price increased marginally to £174,800 from £173,300.
Alistair Leitch, finance director of Bellway, said first-time buyers were being priced out of the market, as lenders demanded deposits of between 25 per cent and 30 per cent in some cases.
"A first time buyer finds it very difficult to get a 25 per cent deposit, even with a Bellway low cost property, unless they have someone backing them," he said.
Bellway had revised its target for full-year sales down to "five to 10 per cent" below the 7,638 units sold in 2006/07.
Mr Leitch said the land market was showing signs of softening and Bellway was well positioned to take advantage given "the strength of the group's balance sheet coupled with a relatively low level of gearing".
Several sites Bellway had rejected because of cost were now coming back into the frame, he said. Overall, the company has a land bank of 23,000 plots with planning permission and 16,900 in the pipeline.
Landsbanki analyst Simon Brown said: "The strengths of Bellway are already showing through in this tough market. A well spread operational geography, astute land assembly in prior years and a cerebral approach to the market ensures its performance against its peers should remain well above average."
He rates Bellway stock a "hold".
Bellway lifted its interim dividend by 10 per cent to 18.1 pence from 16.45 pence.