UK shares: Vistry deepens housebuilder gloom

There are three certainties in life: death, taxes and governments missing housebuilding targets. Andy Burnham, who will almost certainly become the next prime minister, has lofty ideas about a £39bn housebuilding scheme to build the most council homes since the war. A council housing boom is central to his vision for Britain. Nice idea, who’s going to pay for it? And back down to earth, FTSE 250 builder Vistry is at the brickface and showing that it’s not that simple.

New CEO Adam Daniels, in post for three months, has been forced to cut prices to shift unwanted houses. Vistry started the year with £600mn in unsold homes, which it has reduced to around £300mn through price cuts, with around £1909mn of that due from sales in the second half.

So far from building more homes, Vistry is restricting work, with management saying they are reducing levels of work in progress by tightly controlling site starts. Vistry completed about 6,100 in the first half, down more than 11% from 6,900 in the same period a year before.

Market conditions remain tough. After a positive start to the year, market conditions deteriorated in the second quarter, reflecting “increased uncertainty and lower customer confidence triggered by the Middle East conflict”. And while Vistry says it “would welcome some demand-side stimulus” it does not anticipate a significant change in market conditions in H2, or in early 2027.

Shares tumbled as much as 10% following Wednesday’s trading update as Vistry warned of a first-half loss and announced the departure of its chief financial officer.  Vistry said it will swing to a loss of £30mn in the first six months, from a profit of £40.9mn a year ago. Earnings were directly hit by price cuts to homes, although it anticipates a “materially” better performance in the second half of the year.

Formerly known as Bovis Homes, lately Vistry has moved into building social homes in partnership with housing associations and local authorities.

Recently it was mentioned as one of the housebuilders involved in a £4.5bn class action lawsuit over alleged collusion to inflate prices. The action is being taken against Barratt Redrow, Bellway, Berkeley Group, Persimmon, Taylor Wimpey, Vistry Group, and Bloor Homes.

But a bigger concern is the wider UK housing market since the onset of the US-Iran conflict, which has raised costs and suppressed demand as bond yields have risen. 

Vistry has had its own fair share of problems. Last year it overhauled the management structure after a string of profit warnings tied to underestimated building costs. Shares plunged in early March this year again as it warned margins would come under pressure. Shares of Vistry are down ~80% in two years.

Rising labour and materials costs, higher interest rates, falling house prices, rock-bottom consumer confidence and a deteriorating labour market are weighing on housebuilder shares. The other factor is policy uncertainty – will Burnham make a difference, or will it be more empty promises? There was a fair bit of optimism late last year as the Budget acted as a kind of clearing event for the sector and rate expectations were falling...all that has changed and Burnham’s plans are nothing but scraps of paper for now. Nevertheless, the sector has signficantly derated and seems to be pricing a very negative outlook for the UK housing market. And if Burnham does deliver his council house dream then Vistry is well positioned to take the lead. The question is whether it’s in a place to deliver the homes that Burnham seems to want.