Persimmon pauses site openings as sales slump

The UK’s most profitable housebuilder has said it has paused or renegotiated terms on around 30 development sites and said it is too early to predict when a recovery in the housing market might occur.

Persimmon, which reported pre tax profit of just under £1bn in 2021, said in a full year trading update for 2022 it had suffered a double hit in the last three months as mortgage rates had spiked at exactly the same time as the end of the Help to Buy programme, with the effects combining to approximately double the cost of purchasing for some first-time buyers.

The £3.6bn turnover firm said this had seen net reservation rates fall to as low as 0.19 sales per site per week in the last seven weeks of the year – a third of the level last year. Reservation rates were at 0.30 homes per site per week in the whole of the last quarter, 61% down on the same period in 2021.

However, the firm said retained a strong balance sheet and that the longer term demand for housing remained favourable, and said that across the year as a whole it saw a 2% increase in completions, to 14,868 as build delivery improved.

Persimmon’s update echoes numbers from Barratt yesterday, which said it had stopped hiring staff and warned that volume in the year ahead could drop if the market didn’t pick up. The update comes after Persimmon in November blamed Westminster “disruption” for causing sales to slide and cancellations to spike.

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The year end update revealed that the drop off in demand in recent months has had a huge impact on forward orders, with current forward orders down 36% overall compared to a year ago to £1bn. However, it said that private forward orders were down even more, by 56% to £0.5bn compared to £1.1bn at the end of 2021. Given this, it said “we are taking action to manage the impact of the uncertain outlook for the UK housing market and have already taken action to either renegotiate or pause the start of around 30 sites.”

The firm said it saw a “particularly sharp fall in demand on those sites where Help to Buy was more widely used”, once the scheme in England closed.

It said: “Taking together the absence of Help to Buy and the increase in mortgage rates, we estimate that the monthly cash cost of mortgage payments for some first time buyers has approximately doubled over the past year compounded by limited availability of high loan to value mortgages.

“While we are promoting initiatives to stimulate demand […] it is too early to predict when there will be a recovery in demand.”

Dean Finch, Persimmon group chief executive, said the firm had delivered a strong performance for 2022 despite “headwinds” from supply constraints in the early part of the year and the “more challenging sales environment in the second half”. The business will focus on delivering”quality returns” rather than sales volumes, the statement said.

Finch added: “In the second half of the year, rising interest and mortgage rates, inflation and weaker consumer confidence began to impact customer behaviour across the housing market. This change in market conditions gathered pace in the fourth quarter and is reflected in the reduction in our recent weekly sales rates and a lower forward sales position as we enter the new financial year .

However, he said Persimmon had the land holdings, balance sheet and management team that meant it was “well placed to navigate this challenging short-term backdrop, whilst continuing to take advantage of any opportunities that may arise.”