Persimmon plea to lower rates to kickstart mortgage scheme

LENDERS must lower rates on the Government’s flagship low-deposit mortgage scheme before it can give a significant boost to the housing market, housebuilder Persimmon warned.

The York-based group yesterday told investors at its annual meeting that while the NewBuy mortgage guarantee scheme has attracted interest from would-be buyers, rates need to be more “attractive”.

Persimmon made the call as it confirmed a strong start to 2012, with private sales in the first 15 weeks up 20 per cent on a year earlier.

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NewBuy, launched last month, aims to help buyers pass the high deposit hurdle which builders believe has been a major brake on the housing sector.

The scheme allows first-time buyers and movers to borrow up to 95 per cent of the value of a property, with builders and Government helping underwrite some of the risk.

“We believe this scheme will support increased sales activity for the UK housebuilding industry once all the major mortgage lenders have entered the market, and made NewBuy widely available at attractive rates,” said Persimmon yesterday.

Halifax, owned by Lloyds Banking Group, this week launched NewBuy products which allow buyers to take out a mortgage with just a five per cent deposit. Its deals are priced at 5.99 per cent and 6.39 per cent, both fixed for two years.

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Northern chief executive Jeff Fairburn said: “There’s a concern over the interest rates that the banks are applying to the product, which, in a number of instances are over six per cent which is a bit ahead of other products in the marketplace.

“The scheme is right and the industry lobbied hard for it and the Government was very keen to support the industry.

“But we had expected more competitive rates on the product and that’s really constraining it to a degree at the present time.”

Visitor levels at Persimmon’s sites in the first 15 weeks of the year were up 10 per cent on a year earlier. But Mr Fairburn said while NewBuy has generated strong interest and a surge in website traffic, it is hard to say if this has translated into sales.

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In a note to clients, analyst Robin Hardy at Peel Hunt stockbrokers said the housing sector appears to be “tightening”, with mortgage availability falling and prices rising.

“The NewBuy indemnified mortgage is failing to ignite, with lenders clearly pricing the product high to deter interest,” he said.

“Halifax has now joined the scheme but is charging 5.99/6.39 per cent so, like others, it does not look keen to participate.”

NewBuy is only available on new properties, in a bid to boost construction rates and employment. The scheme is aimed to help up to 100,000 buyers.

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At its launch, Prime Minister David Cameron said the Government was “delivering on our promise to offer affordable mortgages to buyers who might otherwise not be able to raise the money to buy a newly-built home”.

The Department for Communities and Local Government, which has pioneered NewBuy, did not comment.

Halifax yesterday defended its pricing.

“As the leading lender in the new-build market, we fully support the NewBuy scheme,” said Halifax mortgage director Stephen Noakes.

“Having launched our NewBuy mortgage products earlier this week, our products are priced in line with the market.

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“We have already seen a large number of enquiries and look forward to supporting first-time buyers make that key move on to the housing ladder.”

Persimmon said its order book is up nine per cent on a year ago at £1.24bn.

Deutsche Bank analysts said: “While there may be a little disappointment these numbers didn’t show any real pick-up in visitors post the launch of NewBuy, the company reports a pick-up in web enquiries and as well as an order book including legal completions done in the year of £1.24bn.”

Persimmon has put margin improvement and cash generation at the heart of its strategy, and yesterday said the “trend of increasing profitability is continuing”.

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Despite nearing the peak of its working capital needs, Persimmon had net cash of £12m at the end of March, compared with £113m debt a year earlier.

This stemmed from total free cash generation of £151m over the past year, said the builder.

The shares gained 2.4 per cent, or 15.5p, to close at 650p.

All resolutions were passed at the group’s AGM in York.

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