NewBuy sales hit by mortgage rates, says house builder Redrow

A scheme that aims to help people with smaller deposits buy a new-build home has been scuppered by the high rates of lenders, a major builder said today.

Redrow has attracted just 63 customers to the Government-backed NewBuy mortgage indemnity scheme since it was launched in March.

It said the initiative was not enjoying the success it deserves because rates being offered by lenders did not reflect the lower risk profile of the scheme.

Redrow told investors today: “The take-up so far has been disappointing with just 63 customers choosing to use the scheme with many more discouraged by the high interest rates charged by most of the participating lenders.”

Barclays, Halifax, NatWest, Santander and Nationwide are offering mortgages under the scheme, which is aimed at first-time buyers and those who already own a home but only have funds for a 5 per cent-10 per cent deposit.

Developers put 3.5 per cent of the value of every NewBuy home sold into a pot which is used to protect the lender in the event of a default. The Government has guaranteed the scheme in the event that these funds are not large enough to cover a lender's losses.

Redrow said it would like to see the scheme extended to the second hand market to stimulate demand across the whole housing sector.

Chairman and founder Steve Morgan said the outlook for the industry remained challenging despite his company today reporting a 70 per cent jump in profits to £43 million for the year to June 30.

He added: “Supply of mortgages, although slightly improved on last year, remains a significant constraint, as does public confidence due to the country's fragile economic state.”

Like most housebuilders, Redrow's margins have improved due to an increasing proportion of its sales being generated from sites purchased since the downturn.

Its average selling price has increased 15 per cent to £189,900 as it benefits from increased sales of its New Heritage Collection, which offers family housing.

Mr Morgan has also been critical of the planning process and said today it remained a “major obstacle” to development despite the publication of the Government's national planning policy framework.

He added: “The Government is determined that planning ceases to be a major obstacle to growth and we strongly welcome the recent initiatives.”

There was no update today on Mr Morgan's planned takeover of Redrow, which he founded in 1974 and returned to in 2009 after a boardroom coup.

His Bridgemere investment group, which now holds a 40 per cent stake in Redrow, has tabled a preliminary takeover approach valuing the Flintshire-based housebuilder at 152p a share, equivalent to around £562 million.

Redrow has formed an independent committee of directors to consider the proposal, which is backed by another major shareholder in hedge fund Tosca.

The Council of Mortgage Lenders, which represents the vast majority of banks and building societies, said the NewBuy scheme had made a solid start.

It added: "The initiative was only ever likely to deliver a small number of sales in the first few weeks but it has gathered momentum, and broader participation by lenders and builders and increasing awareness among consumers have helped the scheme to grow.

"With 1,300 reservations to date, NewBuy is well placed to expand further in this autumn's home-buying season."

PA