If you want to know how much the new-build housing market — and housebuilders’ share prices — have been distorted by the government’s Help to Buy scheme, then look no further than the trading update from McCarthy & Stone. As a specialist provider of retirement flats, it operates in a world where buyers receive no help from the state, nor from 300-year low mortgage rates.
By definition, its customers are ineligible for a subsidised five-year loan for a house deposit, because over 65s generally cannot apply for a mortgage, let alone repay one out of a monthly pension. They are also likely to be ineligible for a Help to Buy individual savings account, as they would need to prove themselves first-time buyers — the average age of which has been rising from 29. And, as yet, there are no government incentives for last-time buyers. Probably because so many are already sold on the incumbent administration’s other policies, as lauded in their newspapers of choice, beneath the offers of Princess Diana commemorative plates.
For McCarthy & Stone, then, the UK is a very different country to that being built on by Barratt, Redrow and Persimmon. As one analyst put it: “Market conditions for the group remain tougher than for other housebuilders due to the lack of any support from Help to Buy.”
This is apparent in completed sales. McCarthy’s were flat in the past year, while Barratt’s were up 0.4 per cent, to a nine-year high, Redrow’s up 15 per cent, and Persimmon’s up 8 per cent. It also comes through in the outlook for sales growth. McCarthy’s has slowed a little, delaying its target of building and selling 3,000 units a year from 2019 to 2020, but Barratt expects “modest” growth, Redrow points to a recent 8 per cent uptick, and Persimmon anticipates a “seasonal increase”. It is even more telling in their comparative margins. Despite a 7 percentage point improvement in the second half, UBS reckons McCarthy’s operating margin will be 14.5 per cent, well below Barratt’s 17.2, Redrow’s 19.4 and Persimmon’s 27.6.
McCarthy suffers as, in the absence of a government scheme, it must fund its own customer incentives — in the form of part exchanges and help with stamp duty — just to keep sales chains moving. Almost all its buyers need to sell an old property first. McCarthy’s plight, therefore, is being a new-build provider in an unsupported second-hand market.
However, it could eventually find itself operating — if not building — on a more level playing field. Last month, reports claimed the government had asked the London School of Economics to re-evaluate Help to Buy, given its potential to distort the market. Separately, the recent housing white paper promised incentives for older homeowners to downsize to retirement flats. As McCarthy notes, such environments can also provide social and healthcare benefits . . . to say nothing of a blank canvas for porcelain memorabilia.
Today’s other Lombard note:
Panmure Gordon joins the scrap for scraps
What a good Sport
Some 47 per cent of Sports Direct’s independent shareholders voted to remove chairman Keith Hellawell at Wednesday’s annual meeting, believing him unable to impose corporate governance discipline on chief executive and majority shareholder Mike Ashley. So it was good of Mr Ashley to show how seriously he now takes such matters. He didn’t turn up.