Sales and prices of new-build houses have fallen and cancellation rates have risen in recent weeks at Persimmon, in further evidence the property market is entering a downturn.
The company, one of Britain’s biggest housebuilders, said demand had waned and uncertainty had risen in the past six weeks, as rising mortgage costs and a looming recession weighed on people’s minds.
Dean Finch, the Persimmon chief executive, 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 completed 9,974 homes in the five months to 6 November, down from 10,728 a year earlier. It stuck to its forecast of between 14,500 and 15,000 completions for the year as a whole, even though cancellation rates increased to 28% in the past six weeks, from 21% in the prior 12 weeks, “introducing some uncertainty”.
In the past six weeks, the average net weekly sales rate at each outlet for private homes fell to 0.48, from 0.6 in the 12 weeks from 1 July (and compared with 0.78 a year earlier). The average selling price over the same period dropped by 2%, and Persimmon said its prices were below the market average.
The government’s help-to-buy scheme has closed for new applications, and such sales accounted for a fifth of Persimmon’s completions so far this year.
The Investec housing analyst Aynsley Lammin said: “The sharp deterioration in recent trading clearly implies profits in 2023 will be much lower.”
Persimmon’s trading update echoed trends reported in recent days by the lenders Nationwide and Halifax.
Nationwide reported that property values fell by 0.9% last month, the first monthly drop in more than a year, as the Liz Truss government’s mini-budget triggered financial market turmoil and pushed mortgage rates sharply higher. Halifax reported a 0.4% fall in house prices in October.
Persimmon is cutting back on land purchases and is adopting a “highly selective approach … as we navigate the uncertain outlook for the UK housing market”. Land additions in 2023 are expected to be “significantly lower compared with 2022”.
The Persimmon share price has more than halved since January, making it one of the worst performers in the FTSE 100 index. Shares were down 6.5% on Tuesday morning, making it the biggest faller on the index.
Derren Nathan, the head of equity research at Hargreaves Lansdown, said: “It feels like reality is starting to catch up with the housebuilders. Persimmon looks on track to make good on its promises for 2022, but this could still be at risk if cancellation rates continue to worsen. Higher interest rates and economic uncertainty are weighing on both mortgage availability and customer behaviour. It has been riding the storm of late, managing to increase build rates before the market turned and pass on prices to its customers.
“In 2023 prices are likely to come back, and if inflation keeps on going the way it is, that’s going to be a double hit to margins. Persimmon has more protection than some, with better margins than many of its peers and a strong value offering to its customers.”