Shares in Bellway went sharply ahead yesterday after the Geordie house-builder confirmed early signs that the housing market was picking up in February and March and committed itself to a progressive dividend policy.

It said it was now less reliant on offering sales incentives.

Bellway also announced it is looking for development sites in Warwickshire under a new South Midlands division which will also take charge of an ambitious regeneration project for North Solihull that could last for 15 to 20 years and involve investment of £1.8 billion.

Yesterday Bellway reported profits of £87.8 million for its half-year to January, down from £89.7 million at the same stage last year, while sales rose by 2.8 per cent to £507.5 million.

Howard Dawe, chairman, described last year's market as "challenging", but said sales are now less driven by incentives such as offers of free curtains or fridges.

"We remain cautiously optimistic at this stage," he said.

The interim dividend is raised by ten per cent to 14.3p.

Similar treatment of the final pay-out would give the shares a yield of 2.7 per cent at last night's price of 1264p, up 31p on the day.

A policy of forward selling has built up an order book valued at some £715 million, Mr Dawe added.

This relates to 92 per cent of the company's target for its present year, while more than 1,500 homes of next year's planned production are reserved or contracted.

In the latest six months, Bellway said it had increased the number of homes sold for the 15th year running to 2,958 with an average selling price of £166,600.

More work in progress to meet the larger order book along with heavier investment in land drove the six-month interest charge up by £500,000 to £8.4 million and the balance sheet gearing from 26 per cent to 36 per cent, a level, with which Mr Dawe said the board "remains comfortable".