Persimmon Plc warned that higher mortgage rates and reduced affordability will weigh on the UK property market this year. Its shares fell.
(Bloomberg) — Persimmon Plc warned that higher mortgage rates and reduced affordability will weigh on the UK property market this year. Its shares fell.
Persimmon said that while it was too early to assess a full-year sales rate, should current rates continue for the rest of 2023, the company would sell between 8,000 and 9,000 homes, according to a statement Wednesday. That’s compared with almost 15,000 in 2022.
The sharp increase in the cost of mortgage borrowing had triggered a slump in demand for new homes. At the end of the year, forecasters and economists concluded house prices would tumble in 2023, to mark the first annual decline in a decade.
“The key current challenges are affordability and mortgage product availability,” Chief Executive Officer Dean Finch said in the statement. “While there has been some recent easing in mortgage rates from their high at the end of last year, the majority of respected forecasters do not expect them to return quickly to the levels seen during the previous cycle.”
Persimmon dropped in early London trading, down 8.5% at 8:11 a.m.
What Bloomberg Intelligence Says:
“Persimmon’s dire early 2023 guidance speaks volumes about the challenges ahead, predicting a significant 500-bp margin drag from build-cost inflation (absent price rises). And that’s not all, as the potential fall in volume to 8,000-9,000 homes in 2023 (vs. 14,868 in 2022) — combined with incentives — may hit margin by another 800 bps.” — Iwona Hovenko, BI real estate analyst
In a sign of improvement, the homebuilder says its weekly private net sales rate increased to 0.52 in the first eight weeks of the year, compared with 0.3 in the final quarter of 2022, according to a statement Wednesday. Still, that’s significantly below the same period a year earlier, when its was at 0.92.
Some of Britain’s biggest homebuilders have struck a cautiously optimistic tone about the nation’s housing market in the past few weeks. Barratt Developments Plc reported an uptick in home sales in January, which stood in contrast with a flood of warnings made earlier in the year about the risk of a slowdown.
The company warned that the end of the Help-to-Buy program means there is no government support in place to help first-time buyers for the first time in over a decade. Affordability challenges are most prominent in London and the South East of England, the company added.
“There have been some encouraging signs in the mortgage market recently, with rates reducing compared to late last year,” Finch said. “However, affordability and mortgage product availability still remain the key issues, with particular challenges in the south of England.”
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