Persimmon sees shares fall after revealing falling…

Persimmon sees shares fall after revealing falling demand and prices

Housebuilder Persimmon saw shares fall 8% in early trading after revealing tumbling buyer demand, rising cancellations and falling prices.

The York based business said economic gloom and soaring mortgage rates are impacting on the UK property market, with the average weekly sales rate per outlet in the private market falling to 0.6 between July 1 and November 7, down from 0.78 a year earlier. The figure fell further to 0.48 in the most recent six weeks.

Customer cancellations have also increased to 28% in the past six weeks, from 21% in the previous three months. Bosses said the tougher selling conditions saw prices drop by around 2% in the six weeks to November 7, when market turmoil was sparked by the so called mini-budget as well as unprecedented political upheaval.

In another sign of the worsening outlook for the housing market, the group's forward sales beyond the end of 2022 slumped to £770m from £1.15bn this time last year.

Persimmon said it remains on track for between 14,500 and 15,000 new-home legal completions in 2022, but warned that it expects fewer legal completions in 2023 and said that this, plus lower selling prices, is likely to hit its profit margins.

Group chief executive Dean Finch said: "Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour and this is reflected in our recent weekly sales rates and forward sales position. Persimmon enters this more challenging period as a five-star builder, with average selling prices below the market average, high quality land holdings, and a robust balance sheet.

"The recent strengthening of our land holdings with disciplined investment will maintain our industry-leading embedded margins. Our highly experienced senior operational management team are drawing on their decades of detailed knowledge across many housing cycles to continue to rigorously assess every aspect of our business to ensure we are building quality homes for customers in the most cost-efficient manner.

"This relentless focus on customers, cost-efficiency, cash management and disciplined investment will help us navigate this more challenging market while also strengthening our ability to capitalise on future opportunities. We recognise how important sustainable returns are for our shareholders and today we are setting out a new capital allocation policy that balances this with the need to invest in our future success.

The update follows figures from Halifax at the start of the week, showing the biggest monthly fall in house prices last month since early 2021. The average property value fell by 0.4% to £292,598, marking the third month-on-month drop seen in the past four months, the bank said.

It comes as buyers have retrenched in the face of wider economic worries and rocketing mortgage rates, which climbed to more than 6% for two- and five-year fixed rates in the recent market chaos. Last week, the Bank of England increased the base interest rate to 3% from 2.25%, and more rises are expected as policymakers battle to rein in sky-high inflation in the cost-of-living crisis.