Persimmon set for ANOTHER £1bn as small builders battle to survive

UNDER-PRESSURE housebuilder Persimmon is on track to make another £ 1 billion in profits this year despite being criticised for providing substandard homes.

The FTSE 100 giant, which was rocked by a scandal over a £75 million bonus for disgraced former boss Jeff Fairburn, has defied the housing market slowdown and is this week poised to report £500 million in pre-tax profits for the first six months of the year.

But smaller firms are struggling to compete in a housing market which has ground to a halt. The Mail on Sunday can reveal that in recent days a smaller l uxury housebuilder, Newcourt Residential, collapsed after facing ‘severe cashflow issues’.

Persimmon has failed to shake off concerns about the quality of its homes amid anger over multi-million pound bonuses for its executives and senior managers since it became the first housebuilder to make £1 billion in profits last year.

Last week, the company launched a consultation with customers, employees, suppliers and councils to try to improve its damaged reputation.

City analysts expect Persimmon’s margins – currently around 30 per cent – to slide as it spends more money on its homes.

Chairman Roger Devlin, who ousted Fairburn over his handling of the bonus row, is leading the repair job amid fears it could be stripped of its participation in the Help to Buy scheme, the Government-funded loans to help people get on the housing ladder.

Around half of Persimmon’s homes are sold through the controversial scheme which has been criticised for boosting profits for builders while lifting house prices further out of reach for young buyers.

New Housing Secretary Robert Jenrick has yet to comment, but could limit the company’s participation if it fails to clean up its act. Clyde Lewis, an analyst at City firm Peel Hunt, said Persimmon can afford to spend money to fix its problems and warned: ‘Arguably, it can’t afford not to do so if the Government gets tough on quality in return for the use of Help to Buy.’

Persimmon’s bumper profits are in stark contrast to the fortunes of Newcourt Residential, a builder behind multi-million pound mansions in the leafy stockbroker belt surrounding London.

The company, which was chaired by a former director of private equity firm Apax Partners, has collapsed into administration eight years after it was set up.

Its failure comes as house prices across the South of England fell for the first time in a decade, putting pressure on smaller builders.

Newcourt created luxury houses and flats in London and the South East, specialising in lavish interior design. Its homes sold for an average £1.38 million last year.

In its last accounts, the company warned the appetite from homebuyers was ‘subdued’ and ‘price sensitive’, especially with the likelihood of a No Deal Brexit on the rise.

Restructuring firm FRP Advisory, which is handling the administration, said the company faced ‘ severe cashflow issues’ after a challenging period of trading.

Major housebuilders buy land when it is cheap, build homes and sell them when prices are higher and demand is strong.

While large firms can cope with a downturn and rely on cash reserves as they sell fewer homes, smaller housebuilders such as Newcourt struggle as they need to keep selling houses to survive.

Newcourt was backed by John McMonigall, a former partner of Apax who led its investment in former UK software giant Autonomy, which made Apax a reported £1 billion.