Housebuilder Taylor Wimpey PLC (LON:TW.) has revealed it will make a £130mln provision to cover disputes over leases taken out by customers that have left some of them with a doubling in ground rent as it unveiled a good start to trading in 2017.
In a trading statement ahead of the housebuilder’s annual meeting today in London, Taylor Wimpey’s chief executive, Pete Redfern said that following conversations with freeholders and lenders the group is unveiling “measures which will address our customers' concerns in an appropriate and fair manner.”
READ: Taylor Wimpey posts solid 2016 results, says 2017 trading 'robust'
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The FTSE 100-listed firm said it entered into the lease structures in 2007 “in good faith”, but that a review sparked by customers’ complaints showed the clauses are causing “understandable concern”.
As a result, the firm said it will make a gross provision of around £130mln that will be recorded as an exceptional item in its first half accounts.
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".
Read-across to other house builders will be interesting to observe, says analyst
In a note to clients on Taylor Wimpey, Shore Capital analyst Robin Hardy said: “The action appears to be to change the escalator terms of the ground rent and compensate the investors and hope that the value of the freeholds drops rather than compensate the leaseholder – this may not be popular with those affected.
“The read across to other house builders on this industry-wide issue will be interesting to observe.”
He added; “While the trading update is positive it is broadly in line with consensus expectations we believe and shows a stable climate since the time of the prelims in February.”
Hardy reiterated a ‘hold’ rating on Taylor Wimpey shares, but also said “it can do no harm to take some profits”.
In early morning trading, Taylor Wimpey shares were 1p higher at 199.5p.
Good start to 2017, says Taylor Wimpey boss
On current trading, Redfern said: "We've had a good start to 2017, with positive customer demand and good mortgage availability supporting a strong sales rate.
“We remain well positioned to make further progress in 2017 which supports us in our strategy to deliver sustainable growth and returns through the cycle.”
Taylor Wimpey said its average private net reservation rates were 16% ahead of the prior year at 0.93 sales per outlet per week for the year to date, with cancellation rates remaining low at 10%, against 11% a year earlier.
The housebuilder added that its total order book currently stands at 9,219 homes, up from 8,811 homes at the same stage in 2016, with a total order book value of approximately £2.21bn, up 2% from the equivalent point last year and 31% from the year-end.
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.”
But, he said: “We are optimistic that in 2017, assuming no major policy changes, the upcoming General Election will not disrupt this positive market sentiment.”
-- Adds broker comment, share price --