The storm clouds appear to be gathering for Taylor Wimpey. News that the builder had locked thousands of its buyers into onerous leases with rising ground rent charges played a key part in the government’s announcement last week that it would ban leaseholds on new houses.
Some of the homeowners affected, many of whom can no longer sell or remortgage their homes, plan to sue the company and other developers. Taylor Wimpey has tried to “draw a line” under the issue, in the words of Pete Redfern, its chief executive, by setting aside £130 million to redraw the leases — though experts suggest it will cost the company much more.
It’s a mess for the housebuilder, which this week announced a 23.7 per cent drop in its pre-tax profits to £205 million in the first half of the year. However, its operating profit, before the leasehold provision was taken into account, increased by 23 per cent to £346 million.
History
Taylor Wimpey was created from the £5 billion merger of the housebuilding arms of Taylor Woodrow and George Wimpey in 2007 — the largest such deal in the UK construction industry.
Taylor Woodrow was founded in 1921 by Frank Taylor, an enterprising 16-year-old from Blackpool who borrowed money from his uncle Jack to build two houses, which he sold for a substantial profit. By the 1930s it had diversified into building commercial property and, in the following decades, carried out the postwar regeneration of St Katharine Docks in east London and several trophy projects in the Middle East. Its housebuilding business was boosted in the 1990s by the acquisition of Heron Homes, Bryant Homes and Wilson Connolly — making it one of the UK’s top five homebuilders.
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George Wimpey, a stonemason, founded his stone-working business in Hammersmith, west London, in 1880. It emerged in the construction sector thanks to Godfrey Way Mitchell, an engineer in Peckham, who bought the company after Wimpey’s death in 1913. By the 1970s it had become Britain’s largest private housebuilder and its brand, Wimpey Homes, advertised by the Wimpey cat symbol, right, became a household name.
Analysts say that the 2007 merger was a necessity: both companies were exposed to the US housing market collapse.
Since its creation, Taylor Wimpey has become a powerhouse in the UK building sector, with 24 offices in Britain and one in Spain. Crucially, however, it is exposed to the Help to Buy sector, the government equity scheme for first-time buyers; 45 per cent of its sales in the first half of the year fell into this category.
However, reports in Property Week yesterday that the government is considering winding down the scheme will, if true, have a big impact on its business.
Financial performance
Despite the leasehold scandal, Taylor Wimpey’s results pleased the City and suggest that the company is making the most of being at the vanguard of the affordable new-build sector. The company completed 6,580 homes in the first half of 2017 — an increase of 9.3 per cent on the previous year — and the average selling price rose by 6.3 per cent to £253,000.
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Its order book increased to 8,741 homes, but these were worth 2 per cent less than a year earlier, at £2.1 billion.
Mr Redfern said the company has profited from a lack of foreign competition for UK contracts since the Brexit vote and aims to build 4 to 5 per cent more homes this year than the 13,808 built in 2016.
The group raised its interim dividend to 2.3p per share and announced a higher special dividend of 10.4p, to be paid in July 2018.
The shares rose by 1.5 per cent when this was announced. Yet after yesterday’s report that ministers were thinking of curtailing Help to Buy, shares plunged to 187.90p.
Verdict
The rising cost of construction materials, an ageing workforce and building sites’ overreliance on EU workers all represent a clear danger. There are also fears of a consumer credit bubble and interest rate rise. Experts say the leasehold scandal could cost the housebuilder £500 million, and it will be worried about the future of Help to Buy.
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However, the company has a recent reputation for being well managed, has a strong cash position and is returning capital to its investors. Hold
