PS130m bill for lease scandal; FINANCE; Housebuilder revenue hit by pay-off cost.
Byline: SIMON READ, Edited by GRAHAM HISCOTT
THE leasehold scandal that engulfed housebuilding firm Taylor Wimpey earlier this year has led to a 24% slump in its profits.
A PS130million compensation bill to pay for its rip-off leaseholds meant profits dived 23.7% to PS205m in the first six months of the year.
Many homebuyers who bought properties from the builder between 2007 and 2011 were forced to sign a leasehold contract that contained an outrageous doubling clause. It meant their ground rents, which are paid to the freehold owners of the property, doubled every 10 years.
The shocking price increases would eventually leave leaseholders unable to afford to pay the rent and the terms were so bad that homes were unsellable.
Taylor Wimpey flogged the freeholds to third parties and the PS130m compensation bill will go towards paying off freeholders who will no longer be able to line their pockets via the rip-off clause.
The company said it expects the payments to customers to be "spread over a number of years", adding: "The process of negotiation with the owners of the freeholds to these leasehold properties is ongoing."
MPs called the scandal the "PPI of the housebuilding industry". It may spread to other housebuilders that had similar rip-off leasehold deals. The scandal forced the Government to act last week when it agreed to ban the sale of leasehold new-build homes and pin ground rent at a peppercorn rate.
Stripping out the leasehold provision, Taylor Wimpey's pre-tax profits climbed 25.7% to PS335m.
It completed 6,580 homes, a 9.3% increase from a year earlier, and said average total selling prices climbed 6.3% to PS253,000.
Boss Pete Redfern glossed over the scandal by saying "our first half performance has been strong".
But analysts at Killik & Co downgraded the company's shares, saying: "We do not believe the current valuation reflects the potential for further liabilities in relation to unfair leasehold practices."
PAYING UP Pete Redfern