Persimmon has confirmed it has sold over 3,000 new homes under the government’s Help to Buy Equity Loan scheme launched in April. This equating to approximately a third of the group’s total completions in 2012.
The second, and more controversial, part of Help to Buy was brought forward and launched in October, offering indemnity guarantees to lenders for their 95% mortgages for new and existing homes. Many are saying the scheme risks causing a housing bubble.
Persimmon confirmed that the impact of Help to Buy (2) mortgage indemnity, had “been muted due to the higher level of interest rates being charged with only a limited number of lenders involved in this second phase so far.” They anticipate that sales supported by these guaranteed mortgages will increase as interest rates begin to reduce as more lenders enter the market over the next few months.
In a statement Persimmon said: “We believe mortgages associated with the Help to Buy equity loan scheme will remain the preferred choice for the majority of customers of the house building industry given that interest rates for this product are significantly more competitive than those available with the Government guarantee.”
This is not surprising as the Help to Buy (1) equity loan has enabled house builders to advertise their headline prices at 80% the total cost which they cannot do with Help to Buy (2)
Persimmon said that visitor levels are up by 20% with weekly sales reservations up 45%. The company confirmed it had already achieved its planned sales target for 2013 and said forward sales for 2014 are 41% higher than last year. Chief Executive Jeff Fairburn, confirmed the company’s cash generation had improved since April, when it brought forward a payment under its programme to return £1.9bn in dividends to shareholders over 10 years. On the prospect of bringing forward more payments he said “If we can, we will.” Persimmon’s share price has risen 58% so far this year. “Underlying operating margins increased by 3% over the prior year to 15.1%, achieving our medium term target eighteen months ahead of plan. We are confident of achieving further progress in the second half of the year”
Meanwhile rival Bovis reported on Friday, that their 2013 target for private reservations for the year had been achieved by the end of September, much earlier than in previous years. Net reservations increased 30% and CEO David Ritchie confirmed “Our forward order book is in its best position for many years. The group is confident of its future prospects and ability to deliver significantly improved returns.” Bovis also expect their average selling prices to be at least 10% higher than in 2012.
Both Bovis and Persimmon are benefiting from taxpayer-funded government initiatives that are underpinning the UK housing market. Improved access to higher loan-to-value mortgages and government support from the Help to Buy equity loan scheme have significantly contributed to the year on year improved financial performance of the larger national plc house builders.
It is a pity they are not using their Help to Buy taxpayer windfall to improve the build quality of their homes and after sales service to their buyers rather than handing the extra profit to their shareholders!