Persimmon revenues dip as buyers wait for revamped Help to Buy scheme
Although sales in the second half of the year were 39 per cent higher annually, fewer active outlets affected the group’s transactions towards the end of 2020.
Persimmon’s trading update report also said constraints on stock availability and first-time buyers waiting for changes to the Help to Buy scheme in December delayed completions.
Amid these delays, the group’s forward sales at the end of the year reached £1.69bn, a 25 per cent growth on 2019’s £1.34bn.
The average Persimmon property sold for £230,500 last year, a seven per cent year-on-year increase. In total, the group completed 13,575 transactions, down from 15,855 the year before.
Dean Finch, group chief executive at Persimmon, said: “Against the backdrop of the unprecedented challenges of 2020, Persimmon produced a robust performance for the year, as we continued to deliver the new homes the country needs.
“The group’s strong second half completions were supported by its advanced build coming into the year, an agile and effective response to the Covid-19 pandemic and resilient customer demand.”
He added: “Recent events have served to further demonstrate the continuing near-term uncertainties arising from the Covid-19 pandemic.
“However, we believe that the longer-term fundamentals of the UK housing market remain resilient and I am confident Persimmon will continue to deliver superior long-term value for all of its stakeholders.”
Persimmon forward sales up 43 per cent amid ‘resilient’ demand
The housebuilder said it had fully sold up for the current year as a “resilient demand for new-build homes” resulted in a strong trading period.
Its average private weekly sales rates per site were also up 38 per cent in the three months to 9 November, compared to the same period last year.
Persimmon’s properties sold for an average price of £246,208, slightly up from £242,912 last year but 19 per cent lower than the UK national average.
The group said its affordable price points made its homes attractive to first-time buyers as half of its private completions for the 10 months to 31 October had been to those stepping onto the property ladder.
Land purchase down
Persimmon has only purchased 1,700 new plots to date this year, a significant drop on the 7,300 plots it acquired last year.
The builder said it remained cautious when acquiring new land and judged each purchase against a “strict criteria”.
The group had a cash balance of £960m as of 31 October 2020, up from £371m the year before. However, it has deferred land commitments of £325m to be paid as well as £70m to land creditors, which it said would leave it with £255m by the end of the year.
Dean Finch, group chief executive, said: “Persimmon continues to perform robustly despite the significant challenges presented by the Covid-19 pandemic and we are currently on course to deliver a good result for 2020.
“The task in front of us is to continue to build a sustainable business in every sense – one that can maintain a strong financial performance whilst continually improving customer service, and fulfilling our important role in the economy, in our communities and for the environment.”
CMA probes big four builders over ‘unfair’ and ‘mis-sold’ leasehold contracts
Barratt Developments, Taylor Wimpey, Persimmon Homes and Countryside Properties are being examined by the regulator.
The CMA said it uncovered “troubling evidence” of potentially unfair terms regarding ground rents and potential mis-selling but added its investigation did not mean the named firms were involved in any or all of these practices.
Regarding mis-selling, it is suspected increases in ground rent are not being fully explained to buyers nor are the frequency of these increases.
Also, it will look at unfair contracts terms which mean homeowners have to pay rising ground rents, which in some cases double every 10 years. As the increase is built into contracts, this can cause issues when homeowners come to selling their properties and in obtaining mortgages.
Developers misleading buyers regarding the availability of freehold properties is being looked into, as the CMA said it found evidence that people were told homes on an estate could only be sold as leasehold, before other properties were sold as freehold to different buyers.
Additionally, the regulator found some buyers were misinformed about the costs of converting a leasehold property into a freehold, with it often costing thousands of pounds more than expected a few years later.
The CMA will also investigate unfair sales tactics including short deadlines to complete a sale, which can make buyers feel pressured into purchasing. It said some buyers potentially would not have bought a property if they knew they had more time.
Ground rent increases based on the Retail Price Index (RPI) will be examined alongside the other issues, and the CMA may take action if it finds evidence of unfair practices in relation to this as it is concerned the link between ground rent and RPI is not always effectively explained to buyers.
It will also look at firms who have bought freeholds from developers but continue to use unfair leasehold contract terms.
Andrea Coscelli, CMA chief executive, said: “It is unacceptable for housing developers to mislead or take advantage of homebuyers. That’s why we’ve launched today’s enforcement action.
“Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been mis-selling or unfair contract terms, these will not be tolerated.”
All four property developers said they were aware of the investigation and would fully cooperate with the CMA during the investigation.
Taylor Wimpey said it took the matter “very seriously” and Countryside said it was “committed to resolving this issue” to the satisfaction of its customers.
Barratt Homes said it was committed to putting its customers first.
A spokesperson for Persimmon added: “A proportion of our properties were sold on a leasehold basis in the past. Following consultation with government, stakeholders and customers we took the decision to stop selling leasehold houses where Persimmon owns the land freehold in 2017.
“Any customers of a Persimmon leasehold property in the last six years have been given the right to buy their lease at below market value and many have done so. We look forward to engaging fully with the CMA on this issue as they continue their investigation.”
National Express boss takes CEO role at Persimmon
Finch has headed up the coach firm National Express since 2010.
Before than he was group CEO of Tube Lines which owns and maintains three of the London Underground lines, and was group finance director and chief operating officer at First Group.
He is expected to join the housebuilder at the end of the year, on an annual salary of £725,000.
Finch succeeds David Jenkinson who announced his plans to leave in February.
Persimmon chairman Roger Devlin said: “Dean is a seasoned, well-respected and proven chief executive with an exceptional record.
“In his current role he has delivered substantial strategic and operational progress over a sustained period, delivering value for all stakeholders in the business while developing a distinct and cohesive culture, focused on customer care and service.
“The board believes that Dean is a great fit for Persimmon and is well qualified to lead the business into the next phase as we continue to drive a programme of change to become the leading volume builder of good value, quality family homes throughout the UK.”
Devlin also thanked Jenkinson for his contribution to Persimmon over many years, and “particularly for his decisive leadership during the Covid-19 outbreak”.
“Dave has committed to lead the business until the conclusion of the current financial year in December.”
Mortgage brokers report green shoots in new-build market as reservations rise
Over the last two weeks, enquiries and reservations for new-build homes have begun to gather momentum as the market shows tentative signs of getting back on its feet.
Several brokerages have reported being contacted by new clients, as well as those who viewed properties before the Covid-19 pandemic who are now ready to commit to buying a new home. One broker said a large portion of her new-build business was coming from those classed as coronavirus key workers.
Like the wider purchase market, the new-build mortgage sector came to a standstill in mid-March when social distancing measures took hold and buyers feared for their job security.
One week later, on 23 March the UK was put into lockdown and the shutters went up on most construction sites, showhouses and sales offices.
Although restrictions have yet to be lifted, determined buyers are pushing ahead with purchases and building sites are beginning to reopen.
Helen Pierson, director, MAB network partner, said: “One of our developers sent out 171 brochures in the week beginning 13 April as a direct result of website enquiries.
“They subsequently secured nine reservations plus another three last week. Our numbers are well down on pre-coronavirus figures but it’s testament to the fact that where there’s a will there’s a way. Developers have started to bring furloughed sales staff back into the business in order to cope with demand.”
Key workers and committed buyers generating activity
Pierson said a lot of her recent business had been from key workers and those in industries unlikely to be furloughed, such as NHS staff, council workers and online retail employees. These buyers, said Pierson, were confident they have job security and were comfortable committing to a new home.
New-build director James Kinns, The Mortgage Store, said the reservations they were seeing originated from people who went to visit sites six months ago and have now decided to go ahead. And while enquiries remained low, said Kinns, they were being made by committed buyers.
“We’ve noticed that the people who are enquiring are motivated and serious buyers,” he said. “The numbers are down but certainly the people who are looking or talking to builders are keen to do a deal.”
L&C’s communications director David Hollingworth said the firm’s enquiries had doubled in the last two weeks from a heavily reduced base although a low level of enquiries had remained constant throughout the pandemic.
He said: “This recent uplift seems to indicate that the current difficulties are not necessarily putting buyers off and we’re seeing people making reservations and putting themselves in the best position they can be from a mortgage point of view.
“Whilst there’s clear limitations on available mortgage deals and how far prospective buyers can progress at the moment, they are keen to check that they will meet lender criteria requirements and be a good position to proceed when they are able.”
Builders encouraging sales
There are still over 460 new-build mortgage products available, according to Moneyfacts. While a handful of deals at 90 and 95 per cent loan to value (LTV) are still available, in the absence of physical valuations, few lenders will use a desk top valuation above 60 per cent LTV. This makes it impossible to move some applications along the mortgage process.
Keen buyers could also be taking their cue from the housebuilders themselves. Persimmon began opening sites this week and Taylor Wimpey plans to restart construction on 4 May.
To encourage people to buy their homes during the pandemic, builders are taking a pragmatic approach to sales.
Daniel Mumford, managing director, Grange Mortgage Services, said builders were letting buyers make provisional reservations with minimal holding deposits of between £50 and £90 instead of charging hundreds of pounds. And if families do not want to push ahead with the transaction immediately or are unable to, Mumford said builders were accepting a verbal agreement and an Agreement in Principle.
Persimmon to reopen construction sites next week
Workers are set for a phased return to sites with social distancing restrictions in place from 27 April, the developer said.
The builder closed all its construction sites on 25 March as part of measures to help prevent the spread of the coronavirus.
It comes after Taylor Wimpey yesterday announced it would return to construction sites from 4 May.
Persimmon said its sales teams have continued working remotely with digital viewings and reservations, with around 820 private sales reservations in the five weeks to 19 April.
Cancellation rates remain low, the builder added in an update released today.
The group has not used the government’s scheme to furlough staff and said it has no plans to access any of the available funding programmes.
David Jenkinson, chief executive, said: “The UK Government has been very clear on the importance of the construction sector to the UK economy and its desire to see activity continue through the current period of crisis, provided appropriate public health measures are adopted.
“Nothing is more important to us than the health, safety and wellbeing of the public, our colleagues, sub-contractors and suppliers.
“Having spent the last month developing and testing new site protocols that incorporate the necessary social distancing and protective measures, we believe that we are now able to return to site safely and support the UK’s economic recovery from the pandemic.
“These new measures are fully compliant with government public health guidance and will be strictly enforced by a specialist team, with any individual failing to uphold standards being subject to disciplinary action and removal from site.”
Top 10 most read mortgage broker stories this week – 20/12/2019
Other top stories included Halifax’s prediction that the effect of the changes made to the Help to Buy scheme would kick in by October and the release of the External Wall Fire Review which is expected to help those stuck in zero value high-rise properties.
‘We’ll see impact of Help to Buy changes by October’ – Halifax
End to high-rise zero valuations in sight as industry-wide process launched
BoE rejects looser stress tests and high LTI mortgage lending limits
‘Pent-up demand’ will boost house prices next year ‒ Knight Frank
Negative equity not a trend but down-valuations are happening – Marketwatch
‘Shocking’ free legal services cost money and must change, say brokers – poll result
FCA admits more execution-only could increase consumer harm
Mortgage prisoners launch legal action against nationalised banks
Price-fixing cartel of Berkshire estate agents fined £600,000
Housebuilding giant built ‘unsafe’ homes report finds
Trio of housebuilders make FTSE 100 best performers of 2019
Barratt Developments ranked number five with a total return on its share price, from 31 December to 17 December 2019, of 72.1 per cent. This includes shareholders reinvesting their dividends.
Taylor Wimpey was up 54.9 per cent and ranked seventh while Persimmon claimed the tenth spot of the best performing companies with a 49.3 per cent return.
Overall the FTSE 100 achieved a 17.2 per cent return in 2019. The top two performing companies, JD Sports and AVEVA, began the year as FTSE 250 companies and achieved promotion to FTSE 100 in June, for the first time in either of the firms’ histories.
Russ Mould, investment director at AJ Bell, said: “The FTSE 100 may have confounded a few doubters with a 17.2 per cent total return in 2019 despite concerns over a weak economic growth, Brexit and the December General Election.”
Mould said sceptics would argue, however, that the UK still under-performed globally by lagging behind the FTSE All-World’s total return by six percentage points.
He added: “A trio of housebuilders also features in the top ten. Their net cash balance sheets and ongoing programmes to return cash to shareholders via dividends or share buybacks, or even both, generated interest, especially as their yields stood out in a low-interest-rate world. Promises from Prime Minister Boris Johnson to revisit stamp duty land tax in the run-up to the December election also boosted sentiment.”
Earlier this week, the findings of an independent review into Persimmon, commissioned by the housebuilder found the company was responsible for a “systemic nationwide” failing when fitting cavity barriers which could prevent a fire, with them either missing or improperly installed. It put this failing down to a “manifestation of poor culture coupled with the lack of a group build process”.
The review conducted by Stephanie Barwise QC of the law firm Atkin Chambers concluded that the corporate culture at Persimmon led the housebuilder to produce poor quality homes, which exposed owners to an “intolerable risk” should a fire occur.
The housebuilder has now moved to inspect 16,000 properties to determine whether cavity barriers have been correctly fitted, with promises to put right any errors it finds.
Earlier this year Persimmon confirmed it was slowing down its building process in a bid to improve the quality of homes produced, while its former chief executive Jeff Fairburn left following controversy over his £75m bonus.
Ex-Persimmon CEO named 2018’s highest paid FTSE 100 boss
The house building company profited greatly off the Help to Buy scheme which has been criticised for increasing property prices, and Fairburn (pictured) was initially set to receive a £100m performance related payout.
This was reduced after the bonus received criticism from the Unite trade union who said his bonus showed “everything which is wrong in the housebuilding industry”.
He was also named the highest paid FTSE 100 boss in 2017, after he pocketed a renumeration package worth £47m.
Since the Help to Buy scheme launched in 2013, the demand for new-build homes increased and in that same year, Persimmon enjoyed a 45 per cent rise in weekly private sales during H2 compared to 2012.
Fairburn headed the company since the inception of the scheme but stepped down on 31 December 2018 due to the backlash over his bonus. In the same year, Persimmon reported profits before tax of £1.1bn up from 2017’s £966m.
During his tenure, Persimmon sold more than 74,000 homes across the UK and increased its market capitalisation from £3.4bn to £7.5bn.
Persimmon forced to slow down home sales and increase build costs to improve quality
Persimmon has received heavy criticism from purchasers over the last year about the quality of the homes it was building and it has introduced other measures to help tackle the issue.
This includes a retention programme where up to 1.5 per cent of the property value may be retained by the customer until any snagging issues are cleared up.
It has also introduced an independent review into the business, including workmanship and customer service.
The trading statement said Persimmon was changing the timing of house sales to focus on quality.
“We continue to expect our overall build costs to increase by about four per cent for the year,” the builder said.
“This includes ongoing investment to enhance specification in support of improved levels of customer satisfaction and is after mitigation through progressing our off-site manufacturing activity and reviewing our approach to infrastructure development costs,” Persimmon stated.
So far this year, total forward sales revenue, including legal completions, slightly decreased to £2.7m from £2.8m in the same period in 2018.
However, Persimmon said that it was confident that these sites would make a good contribution to sales once the homes were released for sale.
Overall, the trading update revealed that sales reservations remained in line with the expectations, achieving a similar level of legal completions in the first half as last year.
Mortgage Solutions has contacted Persimmon but the housebuilder declined to comment further.
After recognising the actions taken to improve customer service, the group had 350 active sales outlets for the year to date compared with 375 in 2018.
Its weekly private sales rate per site since the start of the year was five per cent lower than the previous year.
It said pricing conditions remained firm across the regional markets, the average selling price of sales to the private market in its forward order book being about £237,850 compared with £236,500 in 2018.
The group has opened 43 of around 90 new outlets planned for the first half of the year and is building new homes on all sites that have a detailed planning consent.
The board has also recently concluded the renewal of its £300m revolving credit facility with strong support from the group’s five relationship banks.