2010 Persimmon Homes Blog

Archive for July 2013

If one reads the newspapers over the last year we see some UK Builders Enjoyed in 2011, Record Profit Margins (%), and then some builders in 2012 went on to annouce Record Profits.

Then one reads how in 2011 the UK had over 400,000 planning approved new residential properties with land banks, which could have been used to reduce the so called lack of supply.

But then one also read the builders wanted softer planning processes to make it easier for them. Funnily reading one UK Builders internal presentation for Directors and Investors etc, it lists the profitable areas in the UK, which allow greater prices to be charged, and thus greater profit margins – surpringly this is now where new developments are often focussed. Worringly the same presentation shows an illustration of a balance scale, with PROFIT on one side and VOLUME on the other. One presumes this means when the builder reduces volume of new homes built (controls supply by carefully limiting production) then profit increases (higher selling price, against cost to build).

At the same time one reads the UK Builders want financial help from the UK Government, and now we have the latest Funding For Lending and Equity Loan Schemes. Buy a new home and you might enjoy 20% deposit loan provided by UK taxpayers. Now should you default on the loan, or house prices return to more normal (lower) levels, then the mortgage provider is less woried about a forced sale, as 20% is covered by the UK Taxpayer, and 5% by the home owner, leaving only a 75% exposure for the lender (seems a great business to be in, I’m sure other business would like to enjoy taxpayer backed assistance to cover exposure to┬árisk).

The big problem we had trying to buy a new home (excluding quality issues and unfavourable contracts) was the overvaluation which made it a higher risk for the lenders. One wonders how many mortgage refusals were based on the valuation being over optimistic rather than the perception of the 10% deposit being the issue? But then with limited controlled supply by builders, asking prices are naturally going to be pushed up, with benefits for the builders profit margins.

Seems to me the builders are having their cake and eating it, and should prices realise more realistic levels (or a further dip in the economy), then the taxpayer will end up paying for the builders tea party.

Sadly, in the meantime savers, pensioners and those on low incomes are paying the price of the government/builders/bank strategy, with high inflation (increasing prices and cost of living) and reduced savings rates and annuity payments.



  • Bob: Perhaps the New Home Builders are enjoying the econmic climate a bit TOO MUCH :(
  • M. Farley: Walked around a new Charles Church Show Home last week, and found same issues discussed above, noisy bouncy floors. when will they fix this? From read
  • Debbie Brown: Neat idea! Can't beat something that makes cake easier to eat and carry.