Persimmon follows Barratt in reporting sharp drop in demand

Persimmon is the latest housing developer to highlight a major slowdown in sales resulting from heightened uncertainty in the property market.

The FTSE 100 housebuilder told investors on Thursday that demand began to moderate in the second half of 2022 as successive interest rate hikes by the Bank of England fed into rising mortgage costs.

Trading was further hurt by surging UK inflation, which hit a four-decade high in November amid skyrocketing energy prices, and the end of applications for the Help to Buy Scheme in England.

Performance: Persimmon’s sales suffered across all regions but experienced the greatest shrinkage in southern England and at locations where Help to Buy had an outsize presence

These factors particularly affected the group’s performance following former Chancellor Kwasi Kwarteng’s controversial ‘mini-budget’ in late September, which sparked a sell-off in government debt and a spike in mortgage rates.

Its private weekly net sales rate declined to just 0.30 per outlet in the fourth quarter, compared to 0.63 in the prior three months and 0.91 during the first half of the year.

Sales suffered across all regions but experienced the greatest shrinkage in southern England and at locations where Help to Buy had an outsized presence.

Due to weaker demand and increased cancellation volumes, Persimmon’s forward sales position fell by around £600million to £1billion over the past 12 months.

Housebuilding rival Barratt Developments reported a similarly severe downturn in its forward order book on Wednesday as it warned of an ‘uncertain’ outlook for the second half of the financial year.

In response to current market difficulties, Britain’s largest property construction firm said it had slashed land approval numbers, frozen recruitment and brought in additional controls on new site openings.

: Due to weaker demand and increased cancellation volumes, Persimmon’s forward sales position fell by around £600million to £1billion over the past 12 months

Persimmon has also decided to either renegotiate or halt development at about 30 locations, and plans to conduct ‘a highly selective approach’ to any new land acquisitions.

‘We remain focused on achieving quality returns rather than volume,’ added the Yorkshire-based firm, which expects most land spending in 2023 to be focused on the settlement of land creditors.

But chief executive Dean Finch said the company was ‘well-placed to navigate this challenging short-term backdrop, whilst continuing to take advantage of any opportunities that may arise’.

Persimmon shares were one of the FTSE 100’s top risers on  Thursday morning, up 5.9 per cent to £13.58.

Like most other major housebuilders, though, the group’s share price has slumped significantly during the past 12 months as economic uncertainty has depressed activity.

Redrow shares have contracted by around a quarter; Taylor Wimpey shares have lost 36 per cent of their value, while Barratt Developments and Vistry Group shares have declined by around 40 per cent each. 

However, Persimmon shares have far underperformed the wider sector, dropping by more than half.

Analysts at Liberum suggested this may be due to the firm’s slow pace of site openings, its premium valuation, the possibility that high returns could recede to sector norms and its heavy reliance on first-time buyers.

Persimmon estimates that some of its nascent homeowners have seen their monthly mortgage payments double over the last year due to the end of Help to Buy and the surge in mortgage rates. 

Persimmon shares have nearly halved in the last 12 months 

This post first appeared on Dailymail.co.uk