Help-to-buy helps developers much more than buyers

Owl says: But isn’t that what this government and our council wants?

Housebuilder Redrow says it’s looking forward to working with government to consider the future of the help-to-buy subsidy scheme beyond 2021. You bet it is. Since former chancellor George Osborne in 2013 committed to helping homebuyers purchase new properties with a deposit of only 5%, Redrow has reported record profits every year.

The latest annual numbers – and a share price that has improved threefold since 2013 – shows how wonderful life has become for big housebuilders. You’d almost think Redrow was producing high-tech consumer gadgets. Operating margins are running at 19% and return on capital employed has hit 26%. About 40% of its private sales are to help-to-buy purchases, which is typical for the sector.

After an improvement of a quarter in pre-tax profits to £315m, the company hiked its dividend by 70% and said there’s plenty left in the tank. Profits will rise to about £430m by 2020 and the dividend can be almost doubled again “subject to market conditions remaining unchanged”.

The obvious question is why on earth the government, having spent £4.6bn already, would wish to continue with help to buy after 2021. Yes, the scheme has allowed some people to buy homes who would not otherwise have been able to do so, but the clearest beneficiaries of the stimulus to prices have been housebuilders’ shareholders and executives.

Back in 2013, one justification was the limp state of the mortgage market. That no longer applies. The banks are well-capitalised, high loan-to-value mortgages have returned and the Bank of England these days frets about too much lending, not too little.

Osborne’s other argument was that more demand for houses would increase supply. The numbers suggest modest success, even if some of the increase would have happened anyway. But the point now is that withdrawing help to buy overnight wouldn’t obviously cause the housebuilders to down tools for fear that non-subsidised houses would sell for slightly less. A return of capital of 26% is splendid but it is still worth getting out of bed for 15%.

Before ministers commit to renewing help to buy on the same terms, they should recall the warning by Lord King, former governor of the Bank of England, in 2014: “This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market … We mustn’t let this scheme turn into a permanent scheme.”

Ditching help to buy outright in 2021 may be undesirable since there is a fair case that first-time buyers still deserve a leg-up. But, as even wiser housebuilders concede, too many houses qualify for help to buy. Current ceilings are set at £600,000 and 20% of the value of mortgage. Both figures could usefully be cut in half before the scheme becomes an addiction.”

Those “poor” developers get richer

“[Redrow’s] Pre-tax profits rose 26 per cent to £315m in the year to the end of June, Redrow said today, against revenues of £1.66bn, up 20 per cent on last year’s figures.

Legal completions – the number of homes bought – rose 15 per cent to 6,416, while its order book rose 14 per cent to £1.1bn. Average selling price increased seven per cent to £309,800.

Meanwhile, its number of outlets increase three per cent to 132, while it added 5,419 plots to its land bank.

So good was its performance, it has raised guidance to turnover of £2.2bn by 2020, while pre-tax profit is expected to hit £430m. Dividend will rise to 32p per share.

Today it hiked its dividend by 70 per cent to 17p. Shares rose 5.8 per cent to 655.9p in the first minutes of trading.”

Who will help people in sub-standard new build homes?

“There are rising concerns that the rush to build new homes is causing housebuilders to cut corners. Many firms have set tough targets to cash in on huge demand.

There are rising concerns that the rush to build new homes is causing housebuilders to cut corners. Many firms have set tough targets to cash in on huge demand — and meet the Government’s pledge to build 200,000 new homes a year.

Thousands of victims of poor workmanship have formed groups on social media websites such as Facebook, including Taylor Wimpey Unhappy Customers, Avoid Persimmon Homes and Bovis Homes Victims Group.

Hundreds have posted on — named after the jargon builders give to the task of finishing a project — citing problems such as creaking floors, scratched windows and stained carpets.

Campaign groups want a new homes ombudsman who can step in when families are let down. Buyers should also be given a chance to inspect their new-build before being handed the keys, they say.

Paula Higgins, chief executive of HomeOwners Alliance, says: ‘You have more consumer protection when you buy a toaster.

‘The industry is tilted too far in favour of developers, and the complaints system is too confusing.’

A report by the All-Party Parliamentary Group for Excellence in the Built Environment found more than nine in ten buyers report problems to their builder.

Oliver Colvile, chairman of the parliamentary group and Conservative MP for Plymouth Sutton and Devonport, says: ‘There have been too many reports of new homes that are quite simply uninhabitable.

‘We need to ensure there is a clear process whereby developers can be held to account and are responsible for correcting any below-par workmanship as soon as possible.’

Britain’s biggest house builders nearly all reported soaring profits last month. Persimmon reported a pre-tax profit of £783 million for 2016 — a 23 per cent increase on 2015.

Barratt Developments saw a 20.7 per cent rise to £682.3 million, Bellway a 36.5 per cent rise to £492 million, Redrow a 35 per cent rise to £140 million and Taylor Wimpey a 21.5 per cent rise to £733.4 million.
Bovis reported a 3 per cent fall in profits but still made £154.7 million.
Bovis has been forced to set aside £7 million to compensate buyers who have complained about the poor quality of its homes.

In January the firm was revealed to have offered up to £3,000 to buyers who moved into their houses by December 23 as it struggled to meet targets.
Sales have been boosted by the Government’s Help to Buy scheme, which has helped 100,284 first-time buyers onto the property ladder since 2013.
All the firms reported an increase in both the number of homes built and average selling prices. …

… A spokesman for the National House Building Council says: ‘We carry out spot check inspections at key stages during construction… [but] the builder is responsible for ensuring homes conform to building regulations and our standards.’

A Taylor Wimpey spokesman says: ‘We recognise that we do sometimes get things wrong, but we are committed to resolving those issues.’
A Bovis spokesman says: ‘We are putting more resource into customer care and reviewing our processes to ensure a focus on quality.’

Bovis … creek … no paddle?

Bovis is currently constructing all over East Devon, including in large numbers at Axminster, Seaton and Cranbrook.

The company has recently seen the creation of the Bovis Homex Victims Group Facebook site:

Could it be that this has also contributed to their woes?

A City attempt to lay the foundations of a £5bn merger of Bovis Homes and Berkeley Group is on shaky ground, with Berkeley understood to have rejected the idea.

Schroders, Bovis’ biggest shareholder, wrote to Berkeley proposing an all-share merger following a difficult trading period for Bovis which claimed the scalp of its chief executive David Ritchie.

Bovis had issued a surprise profit warning at the end of 2016, saying that pre-tax profits were likely to be flat this year at between £160m and £170m, below analyst predictions of £180m, due to a slowdown in the rate of building and sales in December.

The string of events prompted Schroders to target a merger with Berkeley, which mostly builds homes in London and the South East. Bovis’ activity is also concentrated on that area.

But Berkeley sources said the company had dismissed the call, instead choosing to concentrate on growing through partnerships with the likes of the National Grid, with whom it signed a £700m joint venture to develop new homes on disused land owned by the power provider in 2014, rather than mergers.

Other housebuilders, such as rivals Redrow or Persimmon, could still be in the frame to buy Bovis, which has struggled in recent months with slowing sales of its homes amid wider market uncertainty.

Berkeley itself has not been immune to a slump in the market: last month it amended its five-year dividend plan to return some cash through share buybacks instead. It also said in December that the number of reservations for its homes had fallen by a fifth since the referendum, signalling the impact of the slowing London property market on the company.

It hit out at Government policy which it said was increasing demand rather than supply, saying while it had helped in some areas, it was having “a negative effect on the capital”.

Schroders declined to comment on the terms of its proposals.”

“Builders make billions as housing crisis escalates”

… Multi-million pound executive pay
The rewards enjoyed by bosses are significant.

As well as their £141m wages, Tony Pidgley and Rob Perrins of Berkeley are also sitting on shares in the company worth £440m.

They are not alone. Two executives at Persimmon, another of Britain’s biggest house builders, have shares worth at least £105m as part of their company incentive plan.

Our investigation – published days after the Chancellor Philip Hammond announced more than £5bn of government money would be spent increasing affordable homes and speeding up house building – also shows that Taylor Wimpey CEO Peter Redfern has been paid more than £24m in the past five years. …

… Planning documents kept secret
Previous in-depth reporting by the Bureau highlighted how the UK’s planning system allows developers to reduce their affordable homes targets while keeping their justifications secret.

Developers carry out financial viability assessments for their proposed developments, which often conclude that meeting the affordable housing targets set by local authorities would reduce their profits to a point that the scheme would be worth their while. However those assessments are kept confidential, with even councillors unable to see them.

In order to make sure schemes goes ahead, the local authorities typically reduce their targets or accept payment from the developer in lieu of the affordable homes. That money is supposed to be invested into social and community projects, or the council’s own affordable housing schemes. …

Redrow homebuyers beware


We reserved a new-build, off-plan, home at a local Redrow development at West Malling in Kent earlier this year, after accepting an offer on our house.

Unfortunately, a couple of weeks ago, our buyer pulled out at the 11th hour. Redrow decided immediately to put our reserved house back on the market.

During the construction, Redrow offered us a variety of upgrades such as nicer kitchen units, fancier sanitary ware etc, to which we agreed. These decisions had to be made by certain stages in the build or you lose the option. On this basis, we paid around £4,000 for our upgrades, but since the sale fell through, Redrow has told us we won’t receive any of this back.

Further to this, they are marketing the house at an increased price compared with the other identical homes in the development, to take into account the upgrades that have been installed. We have obviously lost the £500 reservation fee, but where do we stand in terms of the £4,000 we have invested in the house, whether they sell it or not?”
MS, Kent


Given how often house purchases fall through, it’s a brave person that invests £4,000 in a home that they don’t own.

Initially, Redrow stuck to the line that all your payments were non-refundable. “Once products are ordered and paid for, cancellations and refunds are unable to be accepted and this is made very clear through the terms and conditions which buyers are required to agree to before being able to make any MyRedrow (upgrade) purchase,” it said.

However, just as we asked for a copy of the terms and conditions with a view to getting a lawyer to look at them, it emerged that the local sales manager had decided that you would, in fact, be getting your £4,000 back, and this has now happened. It may be coincidental timing, or not.

Other Redrow home purchasers may want to reflect on this experience. We would advise buyers to wait until they exchange contracts before paying for any upgrades, otherwise you leave yourself open to losing any payments made.

Redrow profits up for third year in a row, revenue up 20% to £1.38 billion

” … FTSE 250 housebuilder Redrow continues to shrug off fears of a post-Brexit slowdown, looking forward to ‘another excellent year’ in 2017 after clocking up its third straight year of record results in the 12 months to June 30.

Redrow is the FTSE 250’s top riser this morning, with shares up 6.45 per cent or 24.80p to 409.10p.

The Flintshire-based firm reported a 23 per cent surge in pre-tax profits to £250 million for the year to June 30 after revenues rose 20 per cent to £1.38 billion, with average selling prices of homes up 7 per cent to £288,600.

Redrow said it had £807million worth of private orders at the start of the financial year, up 54 per year-on-year.

Steve Morgan, Redrow’s chief executive, told the BBC today he had ‘not seen any blip whatsoever’ from Britain’s Brexit vote.

Chris Millington, an analyst at Numis, said: ‘Redrow’s full year results are marginally ahead of Numis’ estimates and we are leaving our forecasts for 2017 unchanged.

‘The company has seen strong trading post the EU Referendum and the private forward order book stands 54% up yoy, which gives a good underpinning to 2017. Whilst Redrow’s shares have recovered much of the reduction seen post Brexit and now only trade c.10% below 23/06, they still look good value.’ ”