Not good news for UK housebuilders today, if the AGM trading update of brick and tile maker Ibstock is anything to go by.

The latter’s shares trade 6% lower on news that an extended Winter made for a slow start to the year. Volumes have begun to recover, but it still expects performance to be weighted towards the second-half, driven by new volumes from major projects in bricks and roof tiles. This suggests slower organic growth, which is a concern, as new growth involves costly investment.

But this is only part of the reason why Ibstock shares trade lower. The real bad news, and where the housebuilders are affected, regards pricing. Unfortunately it is also two-fold.

Firstly, Ibstock says price rises are in-line with expectations. So housebuilders are already facing higher input costs for rather important materials to house construction. Secondly, Ibstock highlights that Energy costs are higher than expected, and likely to continue for the rest of the year. Assuming these costs have to be passed on, in order to protect margins, this means Housebuilders may be facing even more and continued price rises.

Not great news when UK house price data is softening, amid consumer uncertainty linked to the twin threat of BoE rate rises and muddled Brexit negotiating. UK housing market fundamentals may well remain strong, but can the same be said of the outlook for Housebuilder profit margins? Only if house prices rise and/or costs stay manageable.

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Head of Research at Accendo Markets
24th May 2018
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