The Daily Telegraph recently published a story featuring Taylor Wimpey CEO Peter Redfern claiming that new regulations following the Mortgage Market Review, which have restricted borrowing for second-hand homes, have not adversely impacted the business and Help to Buy is still being used by their first time buyers. The company also announced that it is fully sold for 2014 and has confirmed a profit upgrade.
Mr Redfern, in a somewhat blatant attempt to talk up the prospect of further new home price increases, is claiming that housebuilders have more room to adjust prices upward since they were starting from a lower base, having fallen behind valuations for existing homes after the great recession. So are we to interpret that, housebuilders such as Taylor Wimpey have not increased their prices in line with the general local market since 2008?
“Housebuilders have to keep liquidity in the business and have more room for price adjustment sellers of existing homes by contrast may take their property off the market if they are not getting the right offer. Big houses in the country market are also proving harder to sell, where housebuilders are not that prevalent. This is having a negative impact on the outlook for the market for existing homes.”
Schemes, in particular Help to Buy, continue to give the new home industry a taxpayer-subsidised helping hand. “………..attractive products that help credit availability and affordability – whereas stricter mortgage rules have started to affect sales in the second-hand market. After the downturn mortgage lenders penalised new build specifically apartments as they felt young buyers posed a greater risk with good incomes but low deposits, but these differences are starting to unwind.”
If new homes were penalised, it was because there is always a 10-20% price premium. Lenders required higher deposits to give more of a buffer to account for the premium and added risk of steeper falls in valauations should the market turn.
According to the Nationwide historical house price index, in Q2. 2009 the average price for a UK home (excluding new homes) was £148,601. In Q3. 2014 it was £184,631 – an increase of 24.2% since the low after the “great recession”. In the same period, Nationwide’s index shows the average price of a new home increasing from a low of £157,934 in Q2. 2009 to £193,409 in Q3l 2014 – a rise of 22.5% (£35,475) over five years. During this period, Taylor Wimpey reported the average selling price of the homes built in 2009 at £160,000 and in 2013 at £191,000 – a rise of 19.4%, slightly less than the Nationwide index average price rise for new homes.
However, the shortfall can be explained by the fact that Taylor Wimpey are building more smaller, cheaper homes, bringing down the reported average selling price. Indeed, in their 2013 accounts, they confirmed that around 20% of total completions in 2013 took advantage of Help to Buy. It should also be noted that in 2013, 2,124 affordable homes were built by the company with an average selling price of £110,000, reducing the overall average selling price by £19,000 from the £210,000 average for private sales only. Taylor Wimpey’ s private sales average was £26,636 (14.5%) higher than the Nationwide average selling price for a new build home at the end of 2013.
The figures would indicate that housebuilders average prices for new homes virtually follow the overall UK housing market both up and down. Any claim that there is scope for further “adjustment of prices upward” in the near future is only made possible because of the state subsidy Help to Buy is providing, (20% of the price) enabling buyers to buy a new home with as little as a 5% deposit. At the same time, there would appear to be no shortage of gullible first-time buyers, so eager to jump on the property ladder they are happy to pay over inflated prices for 80% of a badly-built new home at the top of the market.
Finally from Taylor Wimpey’s own press release on 11 November 2014, it would appear that their sales are falling, as they are at rival Redrow:
“The UK housing market coninues to grow, with demand at a healthy level and customer confidence good. Sales rates for the year to date at 0.66 sales per outlet per week are slightly ahead of last year (2013 equivalent period: 0.65 to date). For the second half to date, sales rates of 0.60 are around 5% below 2013.”
Sales for 1st half of 2014 (from previous announcement): 0.71 per outlet per week! It will all end in tears!