Category Archives: Help To Buy

Observations, news and views regarding the controversial government Help-to-Buy schemes.

Persimmon CEO Jeff Fairburn £93m bonus windfall

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those that have too little.” …Franklin D Roosevelt

I was disgusted when I first reported on Persimmon Long Term Incentive Plan (LTIP) in April 2013  – I still am.

This week, Persimmon’s LTIP bonuses have come into further criticism and were the subject of universal widespread condemnation. Apart from their PR company spokesperson, no one can possibly agree that bonuses on this scale can be justified, even if there has been exceptional performance. Investment giant, Royal London Asset Management said Persimmon was being insensitive when many were suffering from their failure of house builders to construct enough homes, Mike Fox went further saying the payments were “too high in all circumstances”.   The LTIP payments have been critically publicised this week in The Guardian, Daily Mail, Telegraph, Independent and on the BBC website.

Beleaguered Persimmon buyers across the country must have recoiled in disgust when they learned of the scale of the projected payments that 150 Persimmon executives will trouser over the next five years if, as seems likely, the twice extended, Help to Buy gravy train keeps on running all the way to house builders’ bank accounts until 2021.

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Help To Buy Helps Trigger Large Bonus Windfalls

Help to Buy helps trigger large bonus windfalls for housebuilder CEOs and senior directors.
Help To Buy jpgOn 17 March 2014 shares in the housebuilders surged up to 6% as George Osborne announced he was extending the Help to Buy Equity Share on new homes, until 2020. The announcement came less than a year after Help to Buy first became available. It had originally been due to end next year! However the second part of Help to Buy, the UK-wide mortgage guarantee scheme, is still due to finish at the end of December 2016.

At the time the chancellor announced that an extra £6bn would be put into the English scheme, allowing a further 120,000 new homes to be built. However there is little evidence that the housebuilders are responding by building more homes despite Help to Buy “helping” them to around 35% of their sales last year.

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A personal plea to Construction Minister Nick Boles

Dear Mr Boles,
You recently said that you regard house builders as the “unacceptable face of capitalism” after seeing first hand the shoddy workmanship of two house builders in your own constituency, adding housebuilders   “need to design beautiful places that respect the local environment, and they need to build houses to a high quality which will stand the test of time. If they don’t, I cannot and will not defend them.”

I have been campaigning for 8 years via my website and my blog to make the public more aware of the poor quality and design of new homes and housebuilders’ poor and often non-existent after sales service.

Your government has done more for the house building industry than any other government and continues to be the “gift that keeps on giving”. Only this week, stamp duty was reformed. Whilst this is good news for the majority UK house buyers and very welcome, it is also particularly good news for housebuilders, now able to increase their prices even more now that stamp duty threshold ‘chokes’ have been removed. This follows the 20% discount on new homes for first-time buyers under 40, in addition to: NewBuy, FirstBuy and the biggest taxpayer subsidy of all: “Help to Buy” which has ‘helped’ house builders to record profit rises by increasing average selling prices by 20%. Furthermore, your government has relaxed planning rules, requirements to build affordable housing,  Section 106 obligations, Community Infrastructure Levy and the zero-carbon homes policy. There has never been a better time to be a major British home builder.  Ask, and ye shall receive!

If it was not for the dogged determination of Kirsty Burton and her neighbours, perhaps you would never have witnessed first hand the dire quality standards at a Persimmon estate in your constituency. You personally also discovered the complete contempt housebuilders have for anyone calling them to task over the quality of their homes and their indifference to dealing with defects in their customer’s homes. Quite frankly, if a government minister is unable to get a satisfactory response from Persimmon CEO Jeff Fairburn, what chance have the buyers of this company’s new homes?

But please do not make the mistake that this is a new phenomenon,  restricted to just one or two housebuilders on a handful of developments. It is a national epidemic!

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First-time buyers under the age of 40 are to be offered 20% discounts on 100,000 new homes.

Ho Ho Ho! –  Christmas comes early for house builders as David Cameron is set to announce another extension of the Help to Buy scheme at his party’s conference in Birmingham this week. 

Help To Buy 3 jpgUnder the latest proposals, David Cameron anticipates that up to 100,000 houses would be built on so-called ‘brownfield’ land and offered for sale only to young people buying their first home in England. The new homes would be offered at discounted prices of 20% less than their market value.  Exactly who will be valuing the new homes and “comparable” homes has yet to be clarified, but it should be expected that the house builders would set the “market prices” and then “discount” them by 20%. So, in theory at least, a new house worth £200,000 could be bought by a first-time buyer under 40 for £160,000 with a potential saving of £40,000. 

To make the discount possible, the Conservatives are proposing to exempt house builders from certain taxes and requirements such as the Section 106 provision of affordable and social housing, the Community Infrastructure Levy and the Zero Carbon Homes Standard on these sites. In addition, brownfield sites – land previously used for commercial or industrial purposes – and surplus public sector land  will be released to house builders at knock-down prices to fund the discounting – savings which house builders will be “obliged” to pass on to buyers. 

OLYMPUS DIGITAL CAMERAHouse builders will be required to demonstrate, before planning approval is given, that the homes they are proposing to build will be at least a 20% cheaper than comparable houses in order to qualify for the discounted land and tax exemptions. That could mean that at the outset, the homes would have a price set before planning and could perhaps discourage house builders from land banking these sites. Brownfield land can be notoriously costly to develop. Previous industrial and commercial sites are often contaminated and the demolition and  clean up of toxins can be as time-consuming as it is expensive. Factor in that it will also be necessary to bring in clean topsoil and that costly foundation designs may also be required, it is not surprising that the house builder’s preference is always going to be Greenfield land. 

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Housing minister Kris Hopkins, looking after house builder’s interests regarding Help to Buy

Following our articles on New Home Blog regarding house builders profiteering from the Help to Buy equity loan scheme and the government wasting taxpayer’s money advertising it on television, this letter was received from Housing Minister, Kris Hopkins, (on behalf of George Osborne) in response to the points raised.

It was 11 weeks before Mr Hopkins even responded. His statements are misleading and do not answer the arguments in our articles.

He says: “We are advertising [Help to Buy] to make as many people as possible aware of the opportunity”    

Help To Buy jpgIn response, there cannot be a single person in the UK who has not heard of Help to Buy.  In fact anyone considering buying a new home would have the scheme rammed home by house builder’s sales advisors and mortgage brokers.  There was absolutely no need to advertise Help to Buy on television,  wasting taxpayers money at a time of so-called “austerity.”  It is actually advertsing new build homes.

As for Help to Buy being an “opportunity” this is questionable, as the market is overheating.  Those buying 80% of a new home could well find that in a few years time, they have over-stretched themselves and may even suffer negative equity, especially when the scheme has enabled house builders to increase their average selling prices by around 20%!

He says:  “The Help to Buy scheme is enabling hard working families to access finance to buy a home”

What exactly is the “hard working” family that we are hearing so much about? People who work two jobs?  People who work long hours?  People who work physically hard like scaffolders and miners?  Or are they, as is probably the case, the vast majority of people who do a days work but do not actually get paid a fair wage in return  struggling in the face of higher taxation and rising  grocery, energy and fuel bills – all caused by government policy diluting the real value of our currency.  If the government truly wanted to “help” struggling “hard working” first-time buyers, why not abolish stamp duty land tax rather than subsidise house builders and hand taxpayer’s money to their shareholders?

Surprisingly,  “hard working” new home buyers from overseas can also take advantage of the UK government’s “generosity”.   There are no explicit rules or a requirement of citizenship or residency of those benefiting from loans under Help to Buy, although the schemes cannot be used for the purchase of second homes or for buy-to-let purposes. But how would anyone find out if an overseas buyer also owned a home in their own country and using the Help to Buy scheme as a way to reduce property speculation an investment costs?

He says: it gives “Certainty to house builders”

This is the same line trotted out by various plc house builder CEOs and their lobby group the  Home Builders Federation (HBF) whenever the Help to Buy scheme is called into question.  They still believe that Help to Buy can do no wrong – we’ll see!

He says: “House building has increased 23% since last year.”

This is not unexpected, given the low base starting point after the previous, low cost, credit-fuelled property bubble.   House builders are throwing up as many new homes as they can to make the most of the subsidies while they can.  Put food in front of a pig and it will eat more!

He says: given the increase in house building “It is not surprising that house builders profits have also increased.”

But not by a corresponding percentage Mr Hopkins! Most of the plc house builders have already reported increases in profits of around 50% in their most recent annual reports.  This is not even reflected for a full year of Help to Buy.  Redrow profits are up 107%,  Barratt reported profits up 162%.  In addition, house builders are all reporting increases of 14%-17% in their average selling prices, way above increases in the general market, hence the profit.  You charge more when your customers can pay less, with the taxpayer picking up the difference!   Charging more equals more profit!

He says: “Around 1200 builders have signed up to deliver this scheme, and over 90% are small to medium-sized builders.”

Whilst this may indeed be true,   what it does not reflect is the proportion  of   Help to Buy loans taken up by the largest house builders.  These typically represent on  average, around 30% of their total sales.     Based on the latest available figures from the top five house builders by volume, around 25% -30% of their buyers have used Help to Buy.  That is around 12,000 (62%) of the total 19,394 new homes sold using Help to Buy equity share to 31 March 2014, with five of the largest plc house builders accounting for over 62% of the Help to Buy loans thus far.  This could be even higher when they report accounts with the benefit of a full year of Help to Buy.  For the top ten house builders by volume, Help to Buy accounted for around 15,330 of their sales, nearly 80% of the total Help to Buy loans to just 10 house builders!   So it is misleading in the extreme to imply that small to medium sized builders are getting the most benefit.

He says: “We do not agree that help to Buy scheme is creating a bubble”

George Osborne agrees, but has been distancing himself from possible fall-out lately, saying the BoE has all the tools to prevent a house price bubble.  Obviously Mark Carney the Governor of the Bank of England disagrees as does Christine Lagarde at the IMF who urged the UK Government to rethink Help to Buy last Friday.    But hey, what do they know?   Kris says it’s all OK!

He says:  “There is no evidence of widespread land banking of land with planning permission by the major house builders”

Try looking harder!  Taylor Wimpey CEO Peter Redfern stated in a blog on his company’s website that they hve six years’ supply of land with planning permission.  As Taylor Wimpey has a land bank of around 65,400 plots and built 11,696 homes in the year to 31 December 2013, it would imply all of Taylor Wimpey’s land bank has planning permission but not all of it is being built on!  Even allowing for the 10,000 plots with “planning conditions yet to be satisfied”   Redfern alludes to the fact that his company has 30,000 plots ready to be built right now – half Taylor Wimpey’s land bank!   It is to be suspected that a similar situations exist with the other large house builders, why else was their such a outcry of whinging from builder CEO’s over Ed Miliband’s proposed land grab earlier this year?  Despite whatever Hopkin’s data from Glenigan or opinion from estate agent Savills might suggest!

So there we have it, 11 weeks to come up with a misleading response full of government spin  defending house builders profits yet failing to answer or even acknowledge any of the real issues, much as George Osborne’s did at the Treasury Select Committee meeting on 26 March 2013.

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Pay row at Persimmon over Director’s share incentive plan

Jeff Fairburn 2sThe Daily Mail reported this week that three Persimmon directors are in line to receive a staggering £100 million pay windfall. This is part of a £400 million bonus pot linked to a long-term incentive plan equating to around 10% of Persimmon’s market value.

OLYMPUS DIGITAL CAMERATo qualify for the huge payout, Persimmon must give shareholders 620p in dividends between now and 2021. The rewards plan 2012 – around 30million shares in Persimmon, will pay out to several directors. Chief executive Jeff Fairburn, finance director Mike Killoran and southern regional director Nigel Greenaway all stand to share around £100 million. To qualify for the payment, Persimmon must pay certain dividend amounts by the end of 2015, 2017, 2019 and 2021. For 2015, the required amount is 170p. The firm has already declared dividends of 145p and has announced an intention to pay 95p in 2015. So job done for the first tranch of shares! If any biennial target is missed the scheme folds, although they will be able to keep any shares already secured from achieving earlier targets, but they will have to pay to get their shares. If all the targets are met by 2021, they get the shares for free.

Persimmon say the scheme was drawn up when the share price was 620p and that the directors would have to double the size of the company in ten years to benefit. A spokesman for Persimmon told the Daily Mail:

The analysis simply assumes that the share price in 2021 will be the same as it is today and ignores the challenge of returning £1.9billion to shareholders, while simultaneously growing the business to deliver an increase in the ex-dividend share price performance period of almost ten years……..This is a long term plan which is designed to drive outperformance through the housing cycle and there remains a very long way to go”

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Taylor Wimpey threaten to take buyer to court over Help To Buy non-payment

After a a few problems and issues with his new home, despite the completion date being postponed by a month (6th December 2013), one unlucky buyer recently told us that Taylor Wimpey had constantly threatened him with legal proceedings on a daily basis. Amazingly Taylor Wimpey and both the respective solicitors allowed legal completion on his new home without the Help to Buy funding in place and later transferred to Taylor Wimpey – an underpayment shortfall of £44,000. 

Mr K told us:       “In the first week of January, we learned that our solicitor had not sent us the Help to Buy equity release form to sign. He played this down claiming it was a simple paperwork mix-up or oversight. Two days later, we received a call from Taylor Wimpey informing us that they are going to take us to court because for breach of contract as we have not provided the full funds on completion.”

Help To Buy jpg“It transpired that the Help to Buy money had not been released to Taylor Wimpey and they cannot take our solicitor to court, they can only take us to court. The lady from Taylor Wimpey said that even if they did get the balance of the money, we had still breached the terms of our mortgage and they were going to report this to our lender and the mortgage would be revoked.”

“Next we then get a call from the lady who deals with Help to Buy (Radian homes) who inform us that the mortgage offer is incorrectly worded and needs to be changed, otherwise they cannot release the money to Taylor Wimpey. Our solicitor insists the mortgage offer doesn’t need to be changed, Help to Buy insist it does and in the meantime, Taylor Wimpey continue to call us on a daily basis threatening to take us to court.”

“Both Taylor Wimpey and Help to Buy say that our solicitor is incompetent. Our solicitor then suggests that they are both partly to blame as well. We are considering appointing a professional negligence solicitor to take over the file with Taylor Wimpey saying that if we did, that they would take us to court straight away.” 

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Ultra low interest rates a stealth tax on savers creating a house price bubble

The country is £1.2trillion in debt. The national debt has tripled in the last 10 years and the cost of interest to service this debt is the fourth largest cost to the country, behind education, welfare and health. The interest payments on the national debt cost each of the 30 million UK taxpayers more than £1,650 a year. Yet this Chancellor appears to have “spare money” to give to house builders? In a little under a year, according to figures from the Home Builders Federation (HBF), 55,000 reservations have been made using Help to Buy. Now the scheme has been extended to 2020, at the current rate around 385,000 new homes could be sold using the Help to Buy state-subsidy. 

MoneyThe Bank of England interest rate has been stuck at 0.5% for five years now – the lowest rate for 300 years. Who has this benefited? The winners are – anyone with a mortgage they shouldn’t really be able to afford, companies looking for cheap debt and the government, which has been able to add to the national debt aided by the very low rates. Oh and those that own shares, especially house builders shares. 

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The Help to Buy madness is being extended by four years to 2020.

George Osborne has announced that the lunacy of his Help to Buy scheme for new-build homes is to be extended for a further FOUR YEARS to 2020,  less than a year after it was first made available. 

Help To Buy jpgThose keen on the stock market can watch today as builders share prices soar still further on this latest announcement. Already share prices of Bovis, Crest and Persimmon are up around 4.5%.  Remember this is taxpayer’s that are funding the five-year interest free loans, after we at least receive 1.75% on our money! This extension t0 the scheme will cost taxpayers a further £6billion! Also let us not forget that, at the same time, George Osborne is steadfastly refusing to raise the 40% income tax thresholds, despite calls from many in his own party as well as two ex-chancellors Nigel Lawson and Norman Lamont. Just over 1.7million paid the top rate threshold twenty years ago. Today that figure is 4.4million and is predicted to rise to 5million before the next election in 2015. 

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House builders report profits double.

This week five national plc house builder’s reported record profit rises as they cash in on the state sponsored Help to Buy feeding frenzy. According to recent figures from the DCLG , 89% of the Help to Buy loans have gone to first-time buyers since the scheme began in April 2013. With an apparently never ending stream of undiscerning, naive first timers flocking to builder’s sales offices, buying whatever is available, what incentive do house builders have to improve quality of the homes they build? 

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Help To Buy jpgYou also have to question why the government is currently advertising it’s Help to Buy scheme on national television, when the figures released by these major national builders during this week demonstrate that this advertising is totally unnecessary.

Greed is good and greed is back, as both builder CEOs and their shareholders receive payouts from the excessive profits generated from the government’s Help to Buy subsidy.   New Home Blog saw this coming!

Builder’s report record profit increases – but not improving quality!

Here we go again: “Profitability, Cash generation, Completions, Average selling prices, Earnings per share, Land banking, Trading outlook”  yada-yada!     The only house builder to make any meaningful statement regarding a commitment to improving quality and customer service was Barratt, with reference to their consistent HBF  “customer satisfaction” 5-Star rating and their record 102 NHBC quality awards in 2013. 

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