Persimmon sales drop amid rising cancellations and higher interest rates
Housebuilder Persimmon said today it is on track to deliver its full year 2022 volume target of between 14,500 to 15,000 homes despite some increased risk from recently elevated cancellation rates.
In a trading statement which covers the period from 1 July 2022 to 7 November 2022, the firm said higher interest rates creating pressure on weekly sales rates and its forward sales.
The York-based company said “rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour” as it described market conditions as “more challenging”.
Its rate of cancelled sales rose to 28% from 21% in the last six weeks as rising interest rates made mortgages more expensive and introduced “uncertainty” in the market, while the government’s Help to Buy scheme, designed to help open access to the housing ladder, is now closed to new applicants.
Dean Finch, group chief executive, said: “Persimmon entered 2022 in a strong position with healthy forward sales and good weekly sales rates which continued throughout the first half of the year. This, together with our increasing levels of build efficiency, means we are well positioned to deliver new home completions for the year within our previously stated target range, while maintaining an industry-leading housing margin, despite the recent deterioration in market conditions leading to increased cancellation rates.
“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. 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.
“Our highly experienced senior operational management team are drawing on their decades of detailed knowledge across many housing cycles to continue to rigorously assess every aspect of our business to ensure we are building quality homes for customers in the most cost-efficient manner. This relentless focus on customers, cost-efficiency, cash management and disciplined investment will help us navigate this more challenging market while also strengthening our ability to capitalise on future opportunities. We recognise how important sustainable returns are for our shareholders and today we are setting out a new capital allocation policy that balances this with the need to invest in our future success.
“We were proud to lead the industry with our pledge to protect leaseholders from the costs of cladding removal in any multi-storey development built by Persimmon. We have made good progress and continue to proactively engage with management companies to agree work plans. This proactive programme, together with more certainty over the broadened scope of work required by the government, means we are increasing our provision to meet our pledge to protect leaseholders.”