EY-Parthenon analysis finds buyer incentives hitting already squeezed margins

Listed housebuilders issued as many profit warnings in the first half of this year as they did during the height of the global financial crisis, according to analysis by EY-Parthenon.

The consulting firm’s latest profit warnings report revealed that UK-listed firms in the FTSE Home Construction subsector issued eight profit warnings during the period, including six in Q2.

This was the highest level since the start of the pandemic and equal to the number issued in the first half of 2008.

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Six of the eight profit warnings issued by listed housing firms in the first half of this year were made in the second quarter

UK-listed housebuilders have now issued 47 profit warnings since the start of 2020, almost double the 27 recorded in the previous 13 years combined.

Tim Vance, EY-Parthenon UK & Ireland financial restructuring partner, said that “many housebuilders” had entered the year “expecting a gradual recovery as interest rate pressures eased and demand improved”.

However, this did not materialise with “higher energy and input costs, weaker consumer confidence and fading expectations of further rate cuts” all weighing on the sector.

“Developers have increasingly relied on incentives such as mortgage contributions, deposit support and part-exchange schemes to support sales,” said Vance, adding that this had “come at a cost, squeezing margins already under pressure”.

However, he said longer-term prospects were “still positive”, with housing shortages, supportive policy measures and expectations of lower interest rates helping underpin demand. 

“But, as near-term pressure builds, balance sheet strength is becoming an increasingly important differentiator, and questions around liquidity, covenant headroom and restructuring options will move further up the sector agenda,” he said.