Cost of living: Persimmon sees rising cancellations as housing market comes under pressure

Housebuilding giant Persimmon has revealed tumbling buyer demand, rising cancellations and falling prices as economic gloom and soaring mortgage rates hit the UK property market.

The Charles Church owner said the average weekly sales rate per outlet in the private market dropped to 0.6 between July 1 and November 7, down from 0.78 a year earlier - and fell further to 0.48 in the most recent six weeks. Customer cancellations have also ramped up, to 28 per cent in the past six weeks, from 21 per cent in the previous three months. It said the tougher selling conditions saw prices drop by around 2 per cent in the six weeks to November 7, when Britain was gripped by financial market turmoil sparked by the mini-budget and unprecedented political upheaval.

In another sign of the worsening outlook for the housing market, the group’s forward sales beyond the end of 2022 slumped to £770 million from £1.15 billion this time a year ago. Persimmon said it remains on track for between 14,500 and 15,000 new-home legal completions in 2022, but warned that it expects fewer legal completions in 2023 and said that this, plus lower selling prices, is likely to hit its profit margins.

Group chief executive Dean Finch told investors: “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.”

Samuel Mather-Holgate of advisory firm Mather & Murray Financial said: “It’s been a stellar year for Persimmon sales and profits with rising house prices mitigating other increasing costs. That said, its share price has been the worst in the FTSE 100 as the market prices in forthcoming difficulties. The economy is in recession so people are less wealthy. Interest rates have been jacked up, so owning a home is more expensive.”

Victoria Scholar, head of investment at Interactive Investor, noted: “With borrowing costs spiking and the expectation that the housing market will fall into next year, potential buyers are deferring their decisions, holding off until property prices ease and mortgage rates also soften, adding to downward pressures on the housing market. We are also heading towards the seasonally slower period around Christmas when many buyers and sellers typically wait until the holidays are over in the new year to return to the market.”

The update follows figures from Halifax on Monday showing the biggest monthly fall in house prices last month since early 2021. The average UK property value fell by 0.4 per cent to £292,598, marking the third month-on-month drop seen in the past four months, the bank said. It comes as buyers have retrenched in the face of wider economic worries and rocketing mortgage rates, which climbed to more than 6 per cent for two- and five-year fixed rates in the recent market chaos.

Last week, the Bank of England increased the base interest rate to 3 per cent from 2.25 per cent, and more rises are expected as policymakers battle to rein in sky-high inflation amid the cost-of-living crisis.