Persimmon blames Westminister ‘disruption’ as sales slide and cancellations spike

More than £200m has been wiped off the value of housebuilder Persimmon today as the firm blamed “uniquely disruptive political conditions” for a sharp deterioration in sales and an increase in cancellations.

Shares in the UK’s second largest builder by volume fell as much as 8% in early trading before settling around 6% down as the firm cancelled its long-term capital return programme, said volume will fall next year, and hugely increased its provision for building safety repairs.

The £3.6bn turnover housebuilder, issuing a trading update for the period between July 1 up to yesterday, said that while private sales per site per week had dropped to a “resilient” 0.60 per site per week overall, from 0.78 in the same period last year, this had spiralled to 0.48 when taking just the period from September.

In addition, the average price of homes sold in this period actually dropped by 2%.

The trading update said the drop in sales and prices reflected “the uniquely disruptive political conditions and deteriorating economic outlook since September”

The firm also said it had seen cancellation rates increase from 21% in the first 12 weeks from July to 28% in the most recent six weeks amid the turmoil in the mortgage market, which it said left “some uncertainty” over it hitting expected volume of between 14,000- and 15,000 completions in 2022.

Persimmon also said that around 20% of its sales in the period had come through the government’s Help to Buy scheme, which offered equity loans for those struggling to raise deposits, but which has now closed to new applicants.

While the business said its financial position remained strong, with an expectation of ending the year with £700m in cash, and the firm boasted a “healthy forward sales position” and build rates running 20% ahead of 2021, it said the outlook for next year was unclear given the current “period of heightened market uncertainty”.

It said it was “too early” to provide specific guidance on numbers for 2023 given the “recent and rapid change in market conditions”, but that its current expectation was that it will deliver “fewer legal completions” and that with sales prices expected to drop, this “will have an impact on 2023 margins.”

The figures come after the Construction Products Association yesterday predicted that private housing starts will drop 10% next year, with Savills last week predicting an equal fall in house prices.

Persimmon’s sales rate drop since September matches that reported by both Barratt and Bellway late last month. The builder had already seen a drop in completions in the first half of its financial year, which runs to December, on the back of planning “complexity”.

Dean Finch, group chief executive, said: “Persimmon entered 2022 in a strong position with healthy forward sales and good weekly sales rates which continued throughout the first half of the year.

“This, together with our increasing levels of build efficiency, means we are well positioned to deliver new home completions for the year within our previously stated target range, while maintaining an industry-leading housing margin, despite the recent deterioration in market conditions leading to increased cancellation rates.

“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.

In addition to its trading challenges, Persimmon increased the provision for repairing fire safety defects on previously built homes from the £75m previously stated by an enormous £275m to £350m. Persimmon said the revision was due to the number of eligible multi-storey developments it is responsible for increasing to 71, plus “a more detailed understanding of costs, which now include non-cladding fire related build defects”.

In response to these challenges, Persimmon said it was “concluding” its existing capital return programme, under which it has given billions of pounds back to shareholders. The firm said it was setting up a new capital allocations policy, for which the first principle was to “Invest in the long-term performance of Persimmon by ensuring the business retains sufficient capital to continue our disciplined and appropriately timed approach to land acquisition” – rather than return money to shareholders.

It said that while regular dividends would continue, excess capital would only be distributed to shareholders “from time to time, through a share buyback or special dividend”, rather than as a regular planned expectation.

The firm said it was responding to “the increased uncertainty in the political and macro-economic environment, alongside increased corporation tax and the residential property developer tax”.