Bovis Homes

My name is David James Ritchie; I am a 42 year old Scotsman from Falkirk and I have lived in England for 25 years. I am a Chartered Accountant having qualifi ed in 1993 and for the last 13 years I have worked for Bovis Homes Group PLC, a FTSE 250 publicly listed housebuilder. I am married to Stephanie and have two sons, Fraser (15) and Callum (12). I live in Kent in a 500 year old oast house including a commercial Kentish orchard, not one that Bovis Homes built!

 

In a good market it is challenging but you can make a lot of profi t based on holding development land bought one year and then selling houses on that land over the coming years after values have gone up. In the last four years (2007 to 2011) life has been incredibly tough with very low transactional activity and prices falling rather than rising. In these circumstances making any profit is a result! However, running a housebuilding business is great fun – after all, you are dealing in something tangible in bricks and mortar and you are providing your customers with shelter and something they will call their home. If you can provide this and make some profi t along the way then life feels pretty good.

 

No business is perfect and you take risk and reward decisions all the time in business some of which go wrong. I would be lying if I said we had made no mistakes, however, I think we have handled the recession very well and are now stronger for that. If anything, we were a little slow in the fi rst half of 2008 in recognising the speed and depth of the recession – we should have dropped our prices as the market price fell and sold more houses in the ‘teeth of the market storm’. That would have reduced our stock and allowed us to recover even quicker.

 

We have worked hard to reduce costs and get ourselves through the older more expensive land that we own so that we can begin to develop new sites we have acquired in 2010 and 2011 at lower prices. In the downturn we cut our overhead by 50% and we have reduced our build costs by 12%. This has helped to improve profits in 2011. As we launch new sites on land acquired at lower prices, Bovis Homes will grow quickly exploiting the lower cost base and delivering an increase in sales volumes, increasing turnover and signifi cantly improved profi t margins. We gained access to one of the UK’s busiest homebuilders. This assumes that market conditions remain stable, thus we do not need the housing market to improve for us to achieve this growth. We believe the half year results in 2011 represent only the first step of this growth strategy.

 

It is very simple. When the recession hit, housebuilder took the brunt of a 20% fall in sales prices when all of their costs were fixed – land, build and overhead costs. After four years of recession, many housebuilders have cut their overhead, have been able to reinvest in cheaper land and build costs have come down in reaction to lower demand for labour. This brings back stronger profits as you begin to sell homes on this new land, built using cheaper labour. The better housebuilders have been able to complete this recycling from old cost base to new cost base quicker and Bovis Homes is near the front.

 

We do not need the Government to make building the homes easier – we would like the Government to make it easier for first time buyers to achieve their aspiration to buy their own home. For many decades, first time buyers (including myself) have bought their first home with a 5% deposit borrowing 95% from the bank. That deal is not available in the market today which is holding back the whole housing market. One way that the Government could assist in bringing back the 95% mortgage is to assist in reintroducing mortgage indemnity guarantees which protect the mortgage provider if the borrower defaults on their loan. The Government could also underpin the delivery of future housing need by following through with its plans to overhaul the planning regime thus ensuring that housing needs are assessed across the country and local councils are required to have a housing plan. This would create an environment where housebuilders could step forward with confidence and invest delivering a greater number of new homes.

 

The Government is keenly aware that a healthy housebuilding industry is good for the economy – it creates jobs, provides demand for manufacturers and generates highly needed affordable housing. The Government has attempted to generate activity from the housebuilders through initiatives such as Kickstart and FirstBuy which are great short term boosts to activity, however, the long term help the industry needs is a freeing up of the mortgage market so first time buyers can buy there first home with the small hard saved deposit they have. Anything the Government can do to encourage lenders to provide high loan to value mortgages for properly qualified first time buyers would be a fundamental positive for the whole housing market, not just the housebuilders.

 

First time buyers are no longer able to buy their first home by saving up 5% of the value of the home – for decades that has been possible. This change has been one of the major contributors to the housing market recession. To allow first time buyers who have 5% deposit to buy a Bovis Home, we have been lending them an additional 15% of the value of the home to allow them to go to the bank

and borrow the balancing 80%, something the bank is prepared to do. An interesting fact is that the average first time buyer deposit is now 20% (which equates to £25,000 for a typical two bed home in the south of England) but there are not many of them and those who can require help from their parents or us.

 

To limit the need to lend to our first time buyers, Bovis Homes has also introduced Perfect 10 which allows our first time buyers to borrow 90% of the value of their home from the Woolwich at a mortgage rate of 3.79% (the lowest 90% LTV mortgage rate available). This has been achieved through Bovis Homes providing the Woolwich with some insurance protection in the circumstance where a repossession occurs and the Woolwich does not recover some of their loan. So as well as being a lender, we are now an insurer. It would be great to get back to just being a quality housebuilder!

 

The list is long and detailed, however there are fundamental elements to buying land for homebuilding which include:

Location – where will the customers come from and does the location represent an aspirational place to live

Type of home – does the planning consent allow Bovis to build its preferred house types – good quality traditional family homes

Sales values – how much will our homes sell for in the chosen location – the second hand market sets prices not the housebuilder

Ground conditions – the nature of the ground alters your build cost significantly including issues such as foundation design, archaeological issues and dealing with contamination
Materials – what materials should be used on the external elevations of our homes to complement the local vernacular – different materials have different costs

Planning obligations – what we are required to deliver to the local community has to be taken into account as this affects the cost base – things like social housing, education contributions, highway improvements, public open space

Access to services and utilities – no point trying to build houses without electricity/gas/water/drainage

 

The wider housing market will determine the success of the housebuilders as a group. However, within that group, Bovis Homes has the ability to step forward as a leading company and differentiate itself from the pack due to its clear growth strategy. Having dealt with the downturn well, Bovis Homes is investing assertively to grow its activity and profits rapidly based on the assumption of only a stable market. Based on this assumption, I believe that Bovis Homes can exploit the compound effect of growing its annual volume of sales, selling its homes for a higher sales price due to improved mix and location, and delivering stronger profit margins given the lower cost base. This compound effect will drive profits quickly without the assistance of any housing market recovery.

 

We offer an ‘all inclusive’ home which means within the price you pay you get everything you need. We do not believe in selling a basic product and then expect our customers to option up. Our specification is higher than average and the home is one of the best built in the industry. External assessment of build quality continues to place Bovis Homes first of 25 national housebuilders which underpins our view that we provide a high quality home. Your Bovis home is well designed and we believe you will live in one of the most pleasant built environments the housebuilding industry can offer. Bovis Homes has a clear commitment to customer service and every customer travels the Bovis Homes Customer Journey which starts before they reserve one of our homes, at the point they make initial contact to express interest, and ends many years after they move in. 97% of our customers would recommend us to a friend or relative. As a commitment to customer service, I write personally to every customer when they reserve one of our homes making it clear that we are committed to making their journey a high quality experience and inviting them to contact me directly with any issues.

 

Bovis Homes is a southern focused home builder with nearly 70% of its housing land plots being in the south of England. Currently, nearly three quarters of the homes we sell are on sites located in the south. This is part of the Group’s strategy as we believe the south of England housing market will be more robust over the coming years. We do not operate in Scotland and do not develop in city centres. The typical Bovis Homes site is located on the edge of a town centre with good access to employment and transport links. Some TV programmes report that new build homes fail to meet some basic building requirements.

 

All new homes need to meet the UK’s Building Regulations. All Bovis homes meet these national standards which are some of the highest quality standards in the world. The achievement of these standards is externally assessed. Bovis Homes continues to be the highest rank national housebuilder in achieving these standards through this external assessment. The achievement of these Building Regulation standards ensures that all new homes are built better than the vast majority of second hand houses, particularly in respect of energy standards.

 

Our homes are designed to be energy efficient and continue to be some of the highest energy standard homes built in the world. The energy running costs of a new Bovis Home are significantly lower than the typical comparable second hand home.

 

The key is do all the hard work up front. Our housing range has been designed using what we call the Bovis Homes DNA (sometimes seen as Do Not Adjust) which sets out what makes any Bovis home good quality – how it fits together and what is acceptable and not acceptable/making it straight forward to build thus avoiding defects/what quality of materials we will use/what build techniques we use/the way we use the space available within the house. Once we have the right quality home in the range, we control the build ourselves and employ tried and tested build programmes that enable the home to be built to the quality expected. Independent inspections are carried out during the build of our homes to ensure the right quality. By doing this we can repeat the quality on each house without large remedial costs to correct defects and we can do it quickly which keeps costs low.

 

All Bovis Homes are built to national Building Regulation standards which provide some of the highest environmental build standards in the world including insulation standards. The energy cost of running a new Bovis Home is significantly lower than a comparable typical second hand home. As a business, we are aspiring to reduce the impact of our operations on the environment through lower consumption of energy and water in our offices and on our sites. One of the most impactful benefits we can deliver is to reduce the level of waste produced in

building our homes. Through ongoing effort, we are now reducing the waste created by using different materials and changing the way we use such material. Where we do generate waste, we are recycling a great deal of this waste material through partnering with our suppliers to agree ways in which they can take back waste and reuse it.

 

Bovis Homes provides a range of options to help customers buy a Bovis home. These range from help with the deposit (called Jumpstart where we lend 15% of the value of the home for 10 years), part exchange, stamp duty and legal fees paid, and Perfect 10 (where we provide insurance to the mortgage provider in case of repossession). All Bovis Homes customers receive a guarantee from the company to rectify any issues in the first two years and a 10 year warranty for structural defects provided by the National House Building Council.

 

Bovis Homes offers homes between £50,000 and £500,000. As such, there is a wide variety of purchasers, held together by the ambition to own a quality Bovis Home.

 

It is a very simple process. You can contact us via the internet, telephone, e mail or by visiting one of our sales offices. After plenty of time to decide whether you like the homes available on any of our 80 current sites, we will lead you through a detailed process which will ensure the decision to buy a Bovis Home is the right one and then you will reserve the home of your choice. At this stage you are not legally committed, that comes later after you have secured your mortgage and instructed a lawyer to help you with the purchase.

 

Keeping up with the children’s sporting exploits (that means taxi driver) and maintaining house and garden at home. The orchard is a great distraction and whilst it is a bit of fun we do try and make some money from it. I run three/four times a week to keep fit. 

 

Insider Profile

Q. What is your favourite food and tipple?

A. Steak and chips and a glass of red wine.

Q. Where is your favourite place in the world?

A. Loch Lomond.

Q. What is one thing in your life that has happened to you that has had the biggest impact on who you are today?

A. Leaving KPMG and joining Bovis has had a huge impact on me and my family.

Q. If you could have a superpower what would it be?

A. To be able to teleport myself – I hate the stress of travelling from A to B!

Q. What did you want to be when you were 12 years old?

A. An accountant!

Q. What was the last book you read?

A. The Book of Human Skin by Michelle Lovic.

Q. Who is