Major house builder warns of subdued property market

Property market conditions in the new-build sector are likely to remain subdued this year. Persimmon has claimed.

An outlook in the house builder’s annual report warned that with interest rates expected to remain at current levels and a General Election on the horizon, market conditions remain low.

It said: “While we are prepared for 2024 to be another challenging year, we are confident of our ability to manage this. The longer-term fundamentals for the housing market remain positive. 

“Our focus on maintaining a robust balance sheet while investing for growth gives us confidence in our ability to generate strong cash generation and industry-leading returns over the medium-term.”

Persimmon said “enhanced competition” in the mortgage market and wage growth have contributed to improved affordability at the start of the year, albeit it continues to be constrained, particularly for first time buyers and demand for homes remains varied across the country. 

The builder said trading in the southern and eastern counties remains more challenging with weaker pricing, offset by a more robust trading performance in the northern regions. 

For 2023, group revenue fell from £3.8bn to £2.7bn, while pre-tax profit was £351.8m, down from £730m.

Commenting on Persimmon’s resuts, Julie Palmer, partner at Begbies Traynor, said: “If you want to see the pain that the current economic environment has caused the UK’s housebuilding sector, look no further than Persimmon’s results this morning.

“Home sales collapsed by a third in 2023 which, combined with build cost inflation, helped to slash the group’s profitability in half during a difficult year for the housebuilder.

“It’s clear that would-be buyers are still really struggling to afford new builds and mortgages are still too expensive for many, but with such a significant drop in completions in 2023, there’s just not enough new stock entering the market to make a difference to price.”

She highlighted that Persimmon is only forecasting 10,500 completions in 2024, “not helped by our glacial planning system.”

Palmer added: “That’s hardly going to move the dial on a structural housing shortage in the UK or help first-time buyers see a noticeable improvement in the affordability of new housing.

“Long-term, we need more houses and as one of our biggest players, Persimmon is set to benefit from this trend.

“Short-term, any corner cutting to improve affordability could see sub-standard properties entering the market and some very unhappy homeowners.

“So, with no immediate fix to a struggling housing market, Persimmon must strike a balance until interest rates come down and we see some further clarity post the election.”