A builder works on a Persimmon home
(Picture: Persimmon)One of the UK’s biggest developers predicted a drop in house prices next year as rising interest rates, the cost-of-living crisis and a likely recession bite into the market.
Persimmon predicted “a deterioration in average selling prices” even as it said the “recent and rapid change in market conditions” meant it was too early to give full guidance for 2023. But it also confirmed it expected to complete fewer sales than in 2022. It stood by guidance to complete between 14,500 and 15,000 homes this year.
Cancellation rates were rising, reaching 28% in the last six weeks, up from 21% in the 12 weeks before that. Persimmon has a relatively low average selling price, giving meaning the news set off alarm bells across the sector. Its own stock fell by around 6%, in part because it junked its dividend policy. There were three other developers on the list of the FTSE 100’s ten biggest fallers -- Taylor Wimpey fell 1% as did London-focused Berkeley Homes, while Barratt Developments slipped by 0.2%.
Julie Palmer, partner at Begbies Traynor, said: “Persimmon is clearly feeling the impact of rising interest rates which are making mortgages more expensive and causing homebuyers to think twice about moving.
“There’s no doubt there’s a housing shortage in the UK, and Persimmon is confident in the long-term that demand will remain strong. It’s the short and medium term that’s the issue.”
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “It feels like reality is starting to catch up with the housebuilders. Persimmon looks on track to make good on its promises for 2022, but this could still be at risk if cancellation rates continue to worsen. Higher interest rates and economic uncertainty are weighing on both mortgage availability and customer behaviour.”
The York-based company also increased its estimate of the cost of reparing cladding on some if its multi-storey developments in line with industry pledges to improve building safety made after the Grenfell fire disaster. It set aside £350 million for 2022, up from £75 million previously, and pointed out it was a “multi-year programme”. The number of buildings Persimmon is responsible for maintaining reached 71 as it worked through the detail of its pledge to the government to undertake the work, which will now include “non-cladding fire related build defects”.
