Help to Buy Scheme Continues to Boost Builders' Bank Balances

House-builder Persimmon has experienced a 40 percent increase in pre-tax profits for the first half of the year as the...

House-builder Persimmon has experienced a 40 percent increase in pre-tax profits for the first half of the year as the government’s Help to Buy scheme continues to increase demand according to the firm

The interim report shows the firm raked in GBP 899.9m in revenues, a 12 percent annual growth fuelled by a 7 percent growth in home sales. Of this  GBP 135.3m was pre-tax profit, a 40 percent increase on last year’s GBP 96.9m.

The firm has accredited its strong performance to the government’s Help to Buy scheme which helps first time buyers get onto the property ladder.

The scheme, where the Government provides a loan of up to 20 percent of the value of a new property, has been credited with giving Britain's construction industry a "shot in the arm", after months of lacklustre growth.

Persimmon said it had secured more than 1,700 reservations since the scheme's launch in April 2013 and visitors to sites had risen by 15 perccent from a year ago.

Chief executive of the FTSE 100 company Jeff Fairburn said the scheme was "improving buyer sentiment and getting more people into the market"

The report also details a 5 percent increase in sale prices with the average at GBP 179.199 during the first six months and a 7 percent increase in home completions up to 5,022. Persimmon said it’s working to increase production, investing in land and in construction in response to demand in all of its regional markets which had led to it adding 800 acres in the first half of 2013.

Persimmon’s results are released a day after Bovis Homes also reported an increase in first half pre-tax profits, also citing the Help to Buy scheme.

The FTSE 250 company reported pre-tax profits up 19 percent to GBP 18.6m for the first half of the year, on the back of a 17 percent increase in revenues to GBP 183m. Housing operating profit, which excludes revenue and profit from land sales, jumped 50 percent over the six months to GBP 20.5m.

Yet, margins were already improving across the sector before the recent pick-up in UK house prices, as house-builders have been building on land bought cheaply after the housing crash.

Things may be rosy for homebuilders now but they face headwinds on the horizon as an early interest rate rise could easily dent their balloon, while the roll-out of state support to existing housing stock, as well as the new build market could also hurt them.

- Thursday 22 August 2013

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