Taylor Wimpey earmarks £130m to help leaseholders hit by rent review clauses

Economic Warning Signs Increase

Economic Warning Signs Increase

Builder Taylor Wimpey on Thursday said it would pay out £130 million to help customers caught up in a scandal dubbed the "PPI of the housebuilding industry".

But clauses in the contracts doubled the ground rent every decade, meaning those who bought a lease in 2007 with a £250-a-year charge, would pay £500 annually from this year, rising to £8000 in 40 years' time.

Redfern said: "Whilst there is a financial cost to the Group related to this course of action, we confirm that our dividend targets and land investment programme are not impacted".

The figures came as rival Taylor Wimpey hailed a "good start" to 2017, with "positive customer demand" and steady mortgage availability supporting a strong sales performance.

Redfern noted that in "previous election periods, we have seen a slowdown in the housing market as customers pause before making major financial decisions like buying a home".

Taylor Wimpey said it was in negotiations with the majority of freehold owners to change the contracts, and would "pursue other avenues" to help other customers.

Cancellation rates fell to 10 per cent, from 11 per cent for the same period in 2016.

In the first four months of 2017, the housing market remained positive, with continued good accessibility to mortgages at competitive rates.

The group's total order book now stands at 9,219 homes, up from 8,811 homes a year earlier, excluding legal completions to date. "That class of owner could therefore remain stuck with onerous ground rents in properties which will remain hard, if not impossible to sell, at least for a price close to the value of a similar property without the onerous doubling clause". Peel Hunt raised shares of Taylor Wimpey plc to a "buy" rating and lowered their target price for the company from GBX 215 ($2.67) to GBX 210 ($2.61) in a report on Monday, January 9th. Taylor Wimpey plc has a one year low of GBX 109.44 and a one year high of GBX 211.90.

As well as sharply rising ground fees, numerous contracts also allowed third-party firms to buy freeholds to houses, making it much more hard to sell the homes.

The group said it would make a provision of circa £130m to cover the costs of reimbursing customers, which would be reported as an exceptional item in the firm's accounts for the first half of 2017.

However, notwithstanding the above, it is clear from our review that the impact of these doubling rent review clauses is now causing some of our customers understandable concern. Subject to approval from shareholders at the company's annual general meeting, the housebuilder plans to increase its final dividend to 2.29p per share (from 1.18p per share last year).

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