Category Archives: Help To Buy

Yesterday, the government officially launched the Help to Buy Mortgage Guarantee along with details of lender’s fees and some 66 pages of scheme rules.

The £12billion scheme is intended to help thousands of people buy a home. RBS, NatWest and Halifax will start taking applications this week, with HSBC and Virgin Money joining later. However, some bankers working on the scheme say they expect interest rates could be as high as 6%, well above the best deals currently available, due to government fees. Buyers can already get 95% mortgages by paying a rate of around 6%.

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David Cameron has announced, ahead of the Conservative conference in Manchester, that the second phase of the controversial ‘Help to Buy’ scheme is to be brought forward by three months and will be available from 7^th October 2013. This comes despite numerous criticisms and warnings from many top economic experts that Help to Buy will create and fuel another house price bubble.

He rejected these concerns, including those of his Business Secretary Vince Cable of the prospect of an unsustainable boom in house prices, particularly in the south-east of England. Speaking in Manchester, David Cameron said: “talk of a housing bubble to people here in Manchester or Salford, and they would literally laugh in your face”. He also claimed that the number of first time buyers is still almost half what it was before the financial crisis and the number of mortgage approvals is still well below pre credit crunch levels.

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The larger listed house builders have reported accelerated demand for their new homes, with sales, reservations and profit considerably higher so far this year. First half forward reservations are up an average 36% on the same period last year with average revenues and profits are up 13% and 40% respectively. 

Help to Buy has without doubt significantly contributed to the increase in reservations since it was introduced in April, with around 12,500 homes reserved as a result of the scheme, accounting for around a quarter of each house builder’s sales so far this year. 

Barratt CEO Mark Clare said recently: “We have had people coming at 4am for a 9am start and have many examples where our sales teams have arrived to find a dozen or so people waiting. We are starting to see queues, which is not something we have seen for years. And we are also seeing people buying off plan, which we have not seen for five or six years.”  

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All is rosy for the house builders as they continue to pig out and increase their profits due to Help to Buy, the government’s taxpayer-funded subsidy for the house building industry.

Barratt announce profits up 72% and average selling price up 8%

Ahead of their end of year financing report, Barratt released a trading statement on 10 July 2013 stating that the number of completions to 30 June 2013 is forecast to be 13,663 – up 16.1% on last year. With the average selling price up 8% to £192,000, it is not surprising Barratt are anticipating operating profit (“before exceptional items”) to be up 32% to £252 million (10.4%) and profit before tax up a massive 72% on last year to £192million (9.7%) on sales of £2,605 million.  Barratt stated:

“that since the launch of Help to Buy on 1 April, net private reservations per active site per week were up 34.7% on the prior year” “We are targeting Group completion volumes of c. 16,000 units (including JVs) from our current structure, and recognise this may be achieved more quickly than previously anticipated reflecting the benefit of the Help to Buy scheme.”

Barratt have around 380 active developments nationally.

Taylor Wimpey report a 42% rise in profit and 7% rise in average selling prices

Yesterday, Taylor Wimpey reported first half 42% rise in profit before tax of £143.1 million, up from £99.1 million a year earlier. Despite only building only 5191 new homes up just 108 in the H1 period, their average selling price is up 6.8% to £188,000 (from £176,000) on the same period a year ago.

Taylor Wimpey also announced an interim dividend of 0.22p a share, up 16% from 0.19p a year ago.

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Why we must levy a windfall tax on house builders

Along with many financial experts we are of the opinion that George Osborne’s “Help To Buy” scheme will fuel a house price bubble – in fact it already is!

It is nothing short of a subsidy for house builders who continue to make record profits, most of whom report profits up 50% or more last year even before help to buy kicked in. Help To Buy has enabled house builders to avoid reducing prices and provide lenders with less risk on loans. 

The treasury estimates that the £3.5billion scheme will help up to 74,000 new home buyers.  I am of the opinion that the house builders are the main beneficiaries.

Those buying a new home will be buying just 80%, paying ever-increasing prices. The house builder’s shares are at record levels as the Help To Buy bonanza is enabling them to pig out on naive buyers who cannot really afford to own a home. Described by Albert Edwards of Societe Generale as “the indentured servitude of our young people”

The government must therefore levy a windfall tax on all house builders making in excess of a 10% profit whilst the scheme is in operation, to prevent house builders cashing in on the extra demand and raising their prices as financing a new home becomes easier.

When interest rates eventually do rise and there is a corresponding house price crash, it will be the taxpayer, left without a chair when the music stops! 

Quite frankly, Help To Buy is nothing short of a political measure to give the illusion of prosperity in time for the 2015 election. Provided the bubble doesn’t burst before the next election, the government doesn’t care!

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