Scotland property: Housebuilder Persimmon builds fewer homes

The housebuilding giant cautioned over a "highly uncertain" property market in 2024.

"New home buyers are clearly exercising greater caution, and frankly who can blame them," said one analyst.

However, improved guidance for full year volumes, with the company now expecting 9,500 deliveries in 2023 set against "at least 9,000" signalled over the summer, was also flagged.

The York-based group saw average weekly reservations slump to 0.48 from 0.63 a year earlier, but said it had seen a strong pick-up in the past five weeks, to 0.59, on the back of improved trading since the start of October.

INSIGHT: Scotland homes: Builder completes fewer new houses

The group's forward sales have increased since the half year, to £1.6 billion from £1.4bn, although it remains 23% lower year on year.

Persimmon said it was increasingly resorting to incentives to boost demand - standing at about 3.6% on private sales on average in its third quarter - and gave a very cautious outlook over the year ahead.

Persimmon said: "Into 2024, we anticipate market conditions will remain highly uncertain."

It added: "On the whole, pricing remains broadly stable although we have seen a slight reduction in group private average selling price in the forward order book and an increase in the use of incentives, particularly in the South where affordability constraints are greater."

READ MORE: Housebuilder to cut jobs amid slowdown in property market

It said it had faced soaring build costs, which are set to end the year at about 8% or 9%, but added that these had "moderated" since the half-year because of a "proactive approach with suppliers and subcontractors to secure price reductions on both materials and labour over the past few months".

Charlie Huggins, manager of the quality shares portfolio' at Wealth Club, said: "New home buyers are clearly exercising greater caution, and frankly who can blame them.

"Mortgage payments for first time buyers have soared over the past 18 months. When combined with the limited availability of high loan to value mortgages and the end of the Help to Buy scheme in England, it’s no surprise that the housing market has seen a marked slowdown.

"How much worse can things get? Well, interest rates are widely considered to have peaked meaning the first interest rate cut is a matter of if not when. It can't come soon enough for Persimmon. And it could mark the beginning of a strong recovery."

READ MORE: Housebuilding heavyweight warns market outlook unclear as sales plunge

He said: "We probably need to see a few interest rate cuts to entice first time buyers back into the housing market. But with inflation moderating that point has probably been brought forward.

"The one fly in the ointment could be house prices themselves. Prices have held up so far but this could be because there have been very few transactions. If the economy weakens further from here house prices could easily register further declines, causing further pain for Persimmon and its peers.”

Mr Huggins added: "On balance, we're probably nearer the end of the housing market downturn than the beginning. But we will need to see interest rate cuts and perhaps further house price declines to build the foundations for a recovery."

Dean Finch, Persimmon chief executive, said: "Trading in the period was in line with expectations and pricing was broadly stable. We are on track to deliver around 9,500 quality new homes in 2023 with operating profit in line with expectations and at an operating margin similar to the first half.

"While the near term is likely to remain challenging and we remain disciplined on costs, we continue to position the business for growth when the market recovers, as demonstrated by our further progress on planning in the period. The group's national network of outlets providing a high-quality product at a range of attractive prices is a crucial strength in this market."

Shares in Persimmon closed at 1,145.5p, up 5.92%, or 64p.