Housebuilder’s shares drop as it warns of impact of shaky foundations

Housebuilder Persimmon had nearly £400m wiped off its market value in early trading after it warned of fewer sales and lower prices next year.

The FTSE-100 company’s share price dropped 9% this morning as shareholders responded to a gloomy trading update.

York-based Persimmon warned shaky economic foundations and “the recent and rapid change in market conditions” meant it could not provide specific guidance for 2023.

However it said its “current expectation is for fewer legal completions than in 2022 and this together with a deterioration in average selling prices will have an impact on 2023 margins”.

Shares in the UK’s second-largest housebuilder had already fallen by half throughout 2022 as conditions have steadily worsened.

Rising costs and weaker consumer sentiment were already a problem, but the recent jump in interest rates – which have risen from 0.1% to 3% in less than a year – have put further pressure on the housing market.

Last month the UK’s biggest mortgage lender, Lloyds, predicted average house prices will fall 8% next year, but warned the drop could be as big as 18% in a “severe” scenario.

Dean Finch, group chief executive at Persimmon, said: “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.”

Cancellations rose from 21% to 28% in the period between July 1 and November 7.

However sales had stayed “resilient” and it was on track to deliver full year target of between 14,500 and 15,000 homes, Persimmon said.

“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,” added Finch.

It said it would replace its existing capital returns programme with a new capital allocation policy that balanced sustainable returns for shareholders with the need to invest in the group’s future success.

The new programme would ensure the firm retained sufficient capital to invest in long-term performance and to operate prudently with a low balance sheet risk.

“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,” Finch said.

The group said it projected a cash position of around £700m at the end of December, after paying total capital returns of £750m in the year to date.