Northern landlord to cut back on debt-funded housebuilding after repairs put pressure on books

It is expecting Karbon’s capital spending to fall after the partnership is concluded, in roughly two years’ time, and estimates this will be at £12m by the end of 2029 – less than 10% of the current figure.

While Karbon built 707 homes last year, it is expected to add around 300 homes to its stock at the end of 2025-26.

“Because of the higher costs associated with existing stock, and in order to maintain its financial risk profile, Karbon is investigating development options to minimise debt needed for new developments, while continuing to add new homes to the sector,” S&P’s report said.

It continued: “Overall, we expect management’s cost controls and contained development plans to balance pressure from higher investment in existing homes.”

S&P said despite the landlord’s debt metrics being weaker than previously predicted, they are still “solid” and its liquidity is “very strong”.

The agency forecasts Karbon’s earnings before interest, taxes, depreciation and amortisation (EBITDA) to be at 1.3x over the next four years – a drop on last year’s 1.8x cover, but higher than the scenario that would lead to a lower credit rating.

The landlord’s EBITDA margins are likely to remain below 20%, but its operating revenue is due to grow by £26m in the next three years.

Scott Martin, executive director of resources at Karbon, said: “Against a challenging operating environment, we’re really pleased to have retained our A rating.

“The stable outlook reflects our continued focus on balancing financial performance with delivering customer priorities, and our commitment to improving and achieving efficiency gains.

“It highlights that our debt metrics remain relatively solid, despite the elevated cost of investing in our existing homes.

“This has been maintained through a prudent strategy and strong management practices, underpinned by strong oversight of our housing assets.

“S&P commented specifically on the cost controls and adjustments we’ve made to our future development programme, to contain pressure on our metrics. 

“We are seeking ways to meet our affordable housing ambitions and expand operations without incurring large upfront debt requirements, and are looking to institutionally backed models of new home delivery to achieve this.”