Thanks to Help to Buy, builders are the new bankers

 

Outlook Recognise this story? An industry in difficulties, a hefty dose of public sector support, and then big bonuses for the management. But this time we’re not talking about bankers, but some of the UK’s biggest housebuilders.

Howls of outrage from the public would normally ensue, but the housebuilders have gotten away with it. Since the Government’s Help to Buy support scheme was introduced last year the results of our quoted builders have been looking much healthier – along with the remuneration packages of their top bosses. Bovis Homes delivered a cool 166 per cent rise in pre-tax profits for the first half of this year – as well as plans to increase the dividend by almost three times as it cranks up the number of homes being built. Persimmon, in the process of returning £1.2bn to shareholders, posted a mere 57 per cent rise.

When the equity loan part of Help to Buy was introduced in April 2013, it pushed wide open a door that had been barely ajar to first-time buyers, by offering Government loans of 20 per cent of a property’s value to buy a new-build home. But even at the time there were Cassandras, including the former Bank of England governor himself, Lord King, who warned it was “very important that we don’t see this as a permanent feature of the landscape”. Less than a year later, the Chancellor extended the equity loan part of the scheme to 2020. As one boss put it over lunch – barely able to contain his delight: “We’re going to have to try very hard to fuck this up.” It’s a five-year free lunch for the industry.

In the first 15 months of Help to Buy there were 27,167 properties bought using the equity loan scheme. This is small in the context of a million-plus transactions in the overall market, but not in terms of the biggest housebuilders’ results. Bovis chief executive David Ritchie said HTB accounted for around 30 per cent of sales and called it “an important part of the sustainability of the market”. Taylor Wimpey sold 11,700 homes last year, and just over 2,900 of them were transacted using HTB. Persimmon sold 2,203 of 11,500 homes last year through the scheme.

The FTSE 350 housebuilders’ index is up more than 20 per cent since March last year, and so are annual bonuses. Mr Ritchie’s rose from £360,000 to £440,000, Persimmon’s Jeff Fairburn’s rose from £540,000 to £832,500. Taylor Wimpey’s Peter Redfern’s edged past the £1m mark, but (bearing in mind that nearly a quarter of sales came from HTB) the remuneration committee said there was “no significant distortion of incentive target performance”. So that’s alright then.

Helping first-time buyers is a laudable aim. But should it also be a state crutch for bosses’ bonuses and shareholder dividends? Unless boards take a tougher look at pay and cash returns, the Government might have to take action itself. How about excluding sales achieved with Help to Buy when working out bonuses?

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