Blackfriar: A growing sense of unease over shared equity schemes

First-time buyers are, after all, the crucial lubricant needed to get the wheels of the rusty housing market moving again.

But Blackfriar can’t help being concerned that the increased prevalence of shared equity schemes is dangerously altering builders’ business models.

Shared equity is where housebuilders and the Government club together to help buyers afford the hefty deposits required by banks and building societies.

The Government’s FirstBuy scheme allows would-be buyers to stump up just four per cent of the value of a house – a significant help when many banks have set tough lending thresholds.

The Government and builders share the rest of the deposit burden, hoping when the property is resold they can recoup their stake plus any capital gains.

The housebuilders are no longer just hod carriers and brickies; now they’re lenders too.

Bellway’s outgoing finance director Alistair Leitch this week admitted shared equity makes him uncomfortable. Nonetheless, the sales tool was used in 10 per cent of Bellway’s 4,922 home completions in the year to the end of July – although this was down from 18 per cent a year earlier.

“I think shared equity is lazy selling for sales people,” he said.

By the end of July, Bellway had £33.5m of shared equity on its balance sheet. Already it has had to write down the value of the product significantly.

“We’ve got £33m with an original value of about £70m,” said Leitch. “We’ve been very prudent in writing it down.”

York-based housebuilder Persimmon is another big player in shared equity. At the end of June shared equity played a part in 24 per cent of the 4,439 homes sold in the six months.

But while the tool is giving buyers – who otherwise would be forced to remain in rented stock – a foot onto the housing ladder, it is also tying up significant sums of builders’ cash.

“That’s £70m of land we’ve not bought,” admitted Leitch. “We would rather help the customer buy the full home. If you were being brutally honest, a lot of the people buying on shared equity should not be buying.

“I do worry that in five to six years’ time when people start to move, (builders will say) ‘You owe us 20 per cent’. (Buyers will say) ‘But I bought my house’.

“I think there may be a little bit of naivety.”

Government and industry are doing what they can to get the industry moving. Government has covered its back by making housebuilders shoulder some of the risk, as it should.

But Blackfriar worries housebuilders’ diversification into lending may be storing up problems for the future – both for builders and buyers.

n The one overwhelming reason why people shop at Argos is because it’s cheaper than its rivals. The catalogue store chain has been criticised for its complex queuing system and lengthy waits, but the prices have previously made up for the lack of frills.

But Argos is no longer luring in the shoppers. Argos’s management is blaming the economic downturn for poor sales.

It reported a plunge in half-year profits to just £3.4m yesterday. With sales down nine per cent on a like-for-like basis in the 26 weeks to August 27, Argos said its profits slumped from £54.4m a year earlier.

Chief executive Terry Duddy said the company is not seeing the sales improvement it expected. Maybe that’s because shoppers are switching to the likes of Leeds-based Asda where the environment is pleasant and the whole experience is actually enjoyable.

On a trip to Warrington last weekend, Blackfriar was impressed by how helpful the Asda Westbrook staff were. Nothing was too much trouble.

Now Asda is launching a new advertising campaign highlighting the gap between Asda and Argos’s prices.

The supermarket chain is using information from an independent price check website to allow customers to compare the prices of hundreds of toys from Mattel, Hasbro, Lego, Little Tikes, MB and Disney.

Asda claims it is cheaper on 77 per cent of lines.

Argos now allows people to shop on the internet rather than just use the catalogue, but it needs to do more to make the experience enjoyable.

In an age when more and more people are shopping in front of their PC rather than visiting a bricks and mortar store, it needs to update its business model.

People want cheap prices, but they also demand good customer service. If they get both from a supermarket chain there is no need to go to a specialist store.

If Argos is to avoid becoming the next retailer to come a cropper it needs to buck up its ideas.

n If you have a view on this, email [email protected]