Persimmon has signalled the culmination of economic uncertainty and rising mortgage rates has began to impact sales and the UK housebuilder has said they are now entering a ‘challenging period’.
Persimmon shares were down as much as 8.3% on Tuesday morning.
Rising mortgage rates were central to the uncertainty around trading at Persimmon and their key sales metrics have steadily deteriorated.
Build rates were 20% ahead of last year but the questions will be asked around their ability to sell the newly built homes. Persimmon cancellation rates increased to 28% from 21% in the preceding 12 weeks from 1 July 2022 highlighting adverse buyer behaviour in the face of worsening economic conditions.
Persimmon sales
Persimmon’s net private weekly sales rate per outlet has fallen to 0.48 in the six weeks since September, representing a sharp drop from the 0.6 average rates 1 July 2022 to 7 November 2022.
“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,” said Dean Finch, Group Chief Executive.
“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. The recent strengthening of our land holdings with disciplined investment will maintain our industry-leading embedded margins.”
Housebuilders also now face the pressure of the Help to Buy scheme being closed. Persimmon said around 20% of their sales were made using Help to Buy.
Falling house prices will do Persimmon no favours with Halifax saying average UK house prices fell 0.4% in the month to October.
Dividend
Persimmon has become one of the FTSE 100’s biggest dividend payers and today’s update has cast a shadow on their ability to maintain the current level of payouts, but stopped short of signalling any decision.
“Persimmon hasn’t given specific guidance on its dividends for this year, but reading between the lines of the new capital allocation policy, the double digit yield looks likely to moderate to a more realistic level,” said Derren Nathan, Head of Equity Research at Hargreaves Lansdown.
