Builder hails the success of flagship scheme

HOUSEBUILDER Persimmon said reservations for new homes have leapt by nearly a third following the introduction of the Government’s flagship Help to Buy scheme, bringing much needed new confidence into the housing sector.

|

The York-based firm said the scheme has given first-time buyers the confidence to get on the housing ladder, especially in its Northern heartlands where buyers can get a two-bedroom home for around £120,000.

Analysts said Persimmon has benefited from its lack of exposure to the London market where high prices have driven many buyers out.

Sign up to our Business newsletter

Sign up to our Business newsletter

Persimmon’s chief executive Jeff Fairburn said the Help to Buy scheme has generated confidence in the housing market, persuading more people to come to visit the group’s sites.

“It’s generated a lot more interest. We’ve also got interest from people looking to move up through the housing market,” he said.

“People feel they can afford to buy a house. It’s generating confidence in the market. It’s making sure people understand the affordability.”

He added that the Help to Buy scheme means that many Northern first-time home buyers can buy a house for less money than they would spend on renting.

“With the Help to Buy scheme on a £120,000 home, it’s less than £100 a week to service the mortgage.

“That’s very attractive, particularly when compared with renting,” he said.

Buyers have reserved 1,124 of its homes through the Help to Buy scheme since its launch in April, boosting the traditionally busy spring period.

The group said home sales rose by seven per cent during the first half of the year to 5,022, from 4,712 the previous year.

Visitor numbers rose by 13 per cent and total revenues increased by 12 per cent to £900m.

The value of forward sales were 19 per cent ahead of last year at £920m.

Profit margins rose to 15 per cent – a year-and-a-half ahead of target, while it has also sold out a number of developments sooner than expected.

Chancellor George Osborne unveiled Help to Buy in March, which lends buyers 20 per cent of the value of a new home worth up to £600,000, interest-free for five years.

Together with another state stimulus programme, the Funding for Lending Scheme, the Help to Buy scheme has been credited with spurring a recovery in the housing market.

The Funding for Lending Scheme incentivises banks and building societies to lend more by offering them discounted loans.

Figures from the Bank of England yesterday showed mortgage approvals soared to their highest level in three-and-a-half years in May, with 58,242 mortgage approvals for house purchases. That was up from 54,354 in April and the highest level since December 2009.

The average price of a Persimmon home increased five per cent on a year earlier to £179,200, mainly due to the building of more family homes.

Underlying operating profit margins increased to 15 per cent from 12 per cent a year earlier, ahead of its December 2014 target for 15 to 17 per cent profit margins.

Persimmon is returning £1.9bn to shareholders over the next decade, and paid the first £228m tranche in June.

The group plans to keep its active sales outlets stable at 385 for the rest of the year, by opening another 85 new sites.

The builder said market conditions remain stable as it enters the slower summer selling period, but consumer confidence is fra- gile.

It bought another 7,300 plots during the six months, taking its land bank to 70,500 plots with planning permission.

The group has a number of new Yorkshire sites with work due to start shortly on each.

They include Daisy Hill in Morley which has 92 homes, Whinmoor in Leeds with 196 homes and Royston in Barnsley with 143 homes. Shares in the builder have more than doubled over the past year, propelling it into the FTSE 100 Index.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: “As expected, the Government’s newly-introduced Help to Buy scheme has added further fuel to already historically low interest rates.

“In all, and hugely underpinned by Government and Bank of England initiatives, Persimmon and the housebuilding industry continue to make progress.

“With a following wind clearly evident, analyst opinion continues to denote a buy.”

Analysts at Liberum Capital said: “Persimmon’s trading statement was very strong, beating estimates for sales rates, prices and margins.”