Persimmon stumbles over Help to Buy scrutiny

25th Feb 2019 08:30

(Sharecast News) - Shares in Persimmon tumbled on Monday morning after it was reported that the housebuilder could be stripped of its right to claim cash from the government under the Help to Buy scheme.The Department for Housing, Communities and Local Government is mulling a possible of Persimmon's participation in the scheme over a "string of complaints" about poor standards and selling houses on leasehold terms with punitive charges, The Times reported on Saturday.The Help to Buy scheme was launched in 2013 to provide an interest-free loan of up to 20% of the purchase price for buyers with a 5% deposit.The government is currently deciding which house builders will be included in the scheme from April 2021 to March 2023.Persimmon is one of the heaviest users of Help to Buy, having sold roughly 60% of its private homes using the scheme in the first half of 2018, compared with a sector average of nearer 40%.Homes sold under Help to Buy cost almost 15% more per square metre than comparable properties, on average, research by the Times found last year, while noting that Persimmon's profit per house has almost tripled from £22,114 in 2012 to £60,219 in 2018.On top of complaints about its poor build quality, the company, which does not pay all staff a living wage, came in for plenty of criticism last year when it emerged that chief executive Jeff Fairburn was due a £110m pay package, though he eventually pocketed £75m before he was forced to resign. New managing director David Jenkinson collected a bonus worth £40.5m under the same long-term incentive plan. The company's record was further besmirched when it was recently alleged that every one of the 95 properties in one of its housing developments in Suffolk was built in the wrong location, with roads and driveways also built in the wrong place, a missing footpath and changes to home designs."Persimmon's relatively poor record on build quality and the sale of leasehold houses will not be a help in any negotiations with the housing secretary," said Peel Hunt analyst Clyde Lewis, referring to numerous stories of housing developments going unfinished for years and problem new-builds with dozens or even hundreds of snags.Given the government's targets for new housing of around 300,000 new homes per annum and Persimmon being one of the largest developers in the UK, Lewis said he believed it was "unlikely" that the Help to Buy scheme will be entirely removed for the company."However, there could be stipulations around build quality that will be required which would ultimately lead to higher costs for the group and lower margins. We expect to hear more on this subject tomorrow at Persimmon's final results."Being dropped from Help to Buy would be a "big blow" for Persimmon, said market analyst Neil Wilson at Markets.com, given that more than 50% of its private sales are under the scheme."This scheme has been central to Persimmon's recovery last year as the company is expected to report solid full-year results tomorrow, ahead of market expectations. However house builders all looking to wean themselves off the Help to Buy drug ahead of the scheme's planned finish in 2023, Persimmon is not entirely out on a limb."