Collapse in Bovis sales shocks City

By David Prosser, Deputy Business Editor
Wednesday, 7 May 2008

Bovis Homes dealt another blow to the fragile housing market yesterday with a profits warning that rocked the sector to its foundations. Bovis, Britain's most profitable housebuilder last year, said its 2008 earnings would be "significantly lower" than forecast, after a dramatic slowdown in the past eight weeks.

Malcolm Harris, the chief executive, said market conditions this spring – traditionally the time of year when house sales gather pace – were "absolutely awful". Bovis customers have reserved just 1,382 new homes this year – 30 per cent fewer than at this time a year ago. The profits warning shocked investors. While Bovis warned two months ago of the uncertain outlook this year, it did not anticipate the extent of slowdown confirmed by yesterday's update. Bovis made a £123m profit in 2007 but analysts now expect the 2008 figure to be just £50m.

Bovis said the housing market had "deteriorated sharply" since it issued preliminary results on 10 March. It blamed the accelerated pace of decline on a retreat by mortgage lenders, which have raised interest rates and fees, withdrawn products and increased deposits demanded from borrowers. "In the past eight weeks, the mortgage market has practically closed down," Mr Harris said. "Combined with ongoing adverse press speculation about the housing market, this is making homebuyers markedly more cautious."

Bovis is particularly exposed to the areas of the market worst hit by a crunch in the mortgage sector, because almost two-thirds of its homes are sold to first- or second-time buyers, who are more likely to struggle to find larger deposits. Mr Harris warned that the Bank of England's special liquidity scheme, intended to unblock the logjam in the credit markets, "has so far had no effect at all" on the willingness of mortgage lenders to do business at this end of the property ladder.

Unlike Britain's biggest housebuilder, Persimmon, which suspended building at some of its sites last month because of falling sales, Bovis plans to press ahead with its plans for new builds this year.

However, it also warned that the number of people cancelling purchases had risen sharply over the past two months as buyers found they were unable to secure the mortgage deals on which they had banked.

Bovis's warning about the reluctance of lenders to offer home loans to all but the most creditworthy of borrowers was underlined by a report by the mortgage broker Mform. It said the deposits required by lenders with the most competitive mortgage deals had risen sharply over the past 12 months. For example, the best two-year, fixed-rate deals now require an average loan-to-value of 85 per cent, down from 93 per cent a year ago.

Rightmove, the online estate agency, underlined the gloom in the housing market yesterday, describing the outlook for 2008 as "very poor". It has already begun to see a fall in the number of new housing developments, as well as a rise in the rate of estate agency branch closures.

The downbeat mood among property professionals has become much more pessimistic in recent days after house price figures from Halifax and Nationwide, Britain's two largest mortgage lenders. Both said that annual house price inflation turned negative during April, the first year-on-year falls reported since 1996.

New figures to be published by Nationwide today will show the property market's woes have taken their toll on households, with the building society's index of consumer confidence at its lowest level since the survey began in May 2004.

Fionnuala Earley, Nationwide's chief economist, said even if the Bank of England's Monetary Policy Committee, which begins its two-day monthly meeting today, were to cut interest rates further, there was little prospect of any improvement in consumer confidence. "We may have to accept that confidence levels could well worsen before they get better," she said.