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Persimmon warns of sales slide as interest rate rises push up the cost of mortgages

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Housebuilder Persimmon said that its profit fell about a quarter in 2020 as a result of the coronavirus pandemic.

Persimmon achieved sales at the top end of its 2022 guidance, despite the mortgage crisis and the wider economic downturn in the second half of the year.

The York headquartered company, one of the UK’s largest housebuilders, sold 14,868 new homes last year a rise of two per cent compared to 14,551 in 2021.

The average cost of a Persimmon newbuild home increased five per cent, from £237,078 in 2021 to around £248,600 in 2022, the company said in a trading update.

Persimmon, which is a major builder of housing association homes, also saw the average sale price of a housing association property increase eight per cent, to £142,000.  

Dean Finch, chief executive of Persimmon’s sales, said purchases began to slip in the second half of 2022 as rising interest and mortgage rates, inflation and weaker consumer confidence began to impact customer behaviour across the housing market.

According to Persimmon’s research, first-time buyers’ monthly mortgage costs have doubled over the past year due to higher interest rates and the end of the UK government’s Help to Buy scheme.

In a statement Persimmon said: “Higher mortgage rates, inflation, heightened market uncertainty and the end of reservations under Help to Buy in England, had a sharp impact on the Group’s private sales rates in the fourth quarter and will have an adverse impact on the outlook for 2023.”

This market crisis, which gathered pace in the fourth quarter, saw Persimmon’s forward sales plummet. The situation saw the housebuilders forward sales position drop by 36 per cent, from £1.6bn in 2021 to £1.0bn last year.

The drop was particularly acute in relation to Persimmon’s private forward sales position, which plummeted 56 per cent, from £1.1bn in 2021 to just £0.5bn last year.

Permisson however claimed that the long-term outlook for demand for new homes remains “favourable” as Finch said “longer term demand for new homes remains strong”.

At the time of writing, shares in Persimmon are up 3.01 per cent.