House builders report profit rises due to Help to Buy

Help To Buy jpgAll 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.

While buyers are snapping up the opportunity to own 80% of a newly-built home with a free (for five years) government loan, house builders are making record profits, not because they are building more or better quality new homes, but by increasing their prices, up 7%-8%, due to the unprecedented increase in demand created by the Help to Buy scheme. In comparison, the Land Registry’s own House Price Index (HPI) shows house prices to June 2013 rose by just 0.8%, taking the average price paid for a UK home to £162,621.

It is more than clear already, that the Help to Buy scheme is enabling house builders to increase prices and profits but is not facilitating the desired increase in the number of new homes being built. It is in the house builder’s own interests to drip feed the supply of new homes onto the market to maintain the shortage and further fuel rising prices. Planning approval is not hindering the building of more new homes. The main house builders are sitting on landbanks totalling in excess of 343,000 plots, around nearly 6 years supply, based on the current number of new homes being built.

There is a strong case for the government to impose a windfall tax levy on all house builders who have benefiting from Help to Buy, rather than see shareholders receive higher dividend payments on the huge profits being made by these companies.

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Nearly all property commentators, economists and even recently Business Secretary Vince Cable, are warning that Help to Buy could create a house price bubble. It already is with new homes up 8% whilst the general market has risen just 0.8%. When Help to Buy (2) that taxpayer-underwritten £130bn mortgage indemnity guarantee for lenders begins on 1st January 2014, Help to Buy will ignite the rest of the market. The Treasury Select Committee chaired by Andrew Tyrie back in March questioned the Chancellor George Osborne about this. You can read his response to questioning here. Not exactly forthcoming was he?

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One Response to House builders report profit rises due to Help to Buy

  1. It is thought that around a third of house builder’s sales since April have been as a result of the Help-to-Buy scheme. Figures released last week show 10,000 new home buyers have used the scheme to receive a 20% shared equity loan, interest free for the first five years.

    Based on the current average (£204,910), of the larger house builder’s most recently reported average selling prices, the treasury has stomped up around £409.82 million already. Over the next three years the scheme is designed to “help” 74,000 homebuyers with the state aid amounting to around £3.033bn.

    Unsurprisingly house builder’s profits are rising.
    If you give a pig food it will eat it.