Redrow slams lenders over NewBuy

Redrow chairman Steve Morgan has hit out at mortgage lenders and the government over the “very disappointing” introduction of the NewBuy mortgage indemnity guarantee scheme.

Speaking after announcing Redrow’s latest interim management statement to the city, Morgan said the £1bn government-backed scheme would fail unless lenders improved the rates at which they were offering mortgages under the NewBuy scheme.

Morgan’s comment come after lenders increased the mortgage rates in recent days, following Halifax joining the scheme, offering loans at nearly 6%. Morgan said the response from lenders made him wonder whether they had any intention of making the scheme, designed to give buyers access to 95% mortgages at reasonable interest rates, a success.

“Six per cent is completely uncompetitive and as a result the take-up has been really rather muted. The rate doesn’t represent the risk that the lender is taking on. It means that at the moment it [NewBuy] is not going to work.

“The message is we need to talk to lenders and government, if this is going to work then it is going to have to be far more competitive.”

He said that lenders needed to offer mortgages at around 4.5% in order to make the product competitive, and added that the government should be putting pressure on the lenders to change the rates.

One of the first lenders to join the scheme, NatWest, started with an offer of 4.29% but has already put this rate up after the other banks declined to follow suit. Morgan, who said he had sold 20 homes under the scheme, described the response as “very disappointing”.

NewBuy was launched by prime minister David Cameron in March and involves the government and housebuilders underwriting some of the risk from high loan-to-value mortgages to enable lenders to offer them at more competitive rates.

Morgan’s comments came after he announced an £80m money-raising exercise for Redrow in order to expand the firm’s London business. The capital raising is backed by Bridgemere, a firm wholly owned by Morgan, meaning the move has the potential to raise Morgan’s personal stake in Redrow to up to 35%.

Redrow said it was on course to hit analysts’ expectation after reporting private reservations for the 16 weeks to April 20th up 2%, with £188m of reservations made, up 14% in monetary terms. It has completed the sale of 52 apartments in it first London scheme, at an average selling price of £750 per square foot.

Morgan said:  “Redrow has made good progress under a strategy designed to return it to its roots, selling high-quality, differentiated family homes.

“We now believe the time is right to accelerate that strategy by taking advantage of the development opportunities we see.

“During the year to date we have secured planning on over 3,000 plots from our forward land bank, acquired new sites totalling £50 million within Harrow Estates and commenced construction on our two largest London sites.

“There are an increasing number of land opportunities both in London and in the regions and as such we are looking to raise further capital to enable us to take advantage of these opportunities as they arise.”