Re-created the repo using just the Ubuntu user. Not sure what might have been going on with the Git user, you may have been right, torek.
For those who are facing a similar issue and are using a different user account for Git then try the following tutorial - all under the one user.
http://caiustheory.com/automatically-deploying-website-from-remote-git-repository
However please note we had to set the core.worktree after the core.bare configuration.