Persimmon states mortgage interest rates are hindrances for potential homebuyers
Persimmon Boosts Sales and Profit Amid Lowering Mortgage Rates
Persimmon, a leading UK housebuilder, has announced its half-year results, revealing a series of significant achievements amid a trend of falling mortgage rates in the UK. The company has made strategic investments, increased sales outlets, and reported a rise in pre-tax profit, average selling price, and forward sales.
The company invested £210million in new land at 'excellent margins', and increased the number of sales outlets to 277, moving closer to its 300-outlet target. Persimmon's statutory pre-tax profit remained broadly unchanged at £146.7million. The average selling price of Persimmon's homes increased by 8% to £284,047, and the revenue from new housing increased by 12% to £1.31billion.
Persimmon's forward sales for the first six months of its financial year increased by 9%, and the average selling price of Persimmon's forward sales was just under £293,000. Persimmon's forward sales position at the end of June was £1.25billion, an 11% increase from the previous year. The company forecasts higher home completions next year.
However, Persimmon cautioned that margins would continue to face pressure from 'diminishing embedded build cost inflation', 'ongoing affordability constraints', and increased industry-wide costs. The company's shares fell 2.07% or 23.50p to 1,112.00p on Wednesday.
The easing of mortgage rates has been driven by the Bank of England's base rate cuts amid signs of a struggling UK economy and inflation concerns. The current average two-year fixed mortgage rates are around 3.69% to 4.7%, and five-year fixed mortgages average just below 5% (around 4.94% to 4.99%). This marks a significant decline from prior highs above 6% during 2023.
The falling mortgage rates generally improve affordability for buyers, which tends to support or increase housing demand. However, demand is also influenced by economic uncertainty. The recent Bank of England cuts signal caution amid inflation and economic weakness, which may moderate buyer enthusiasm despite cheaper borrowing costs.
Dean Finch, Persimmon's chief executive, stated they remain focused on driving improvements to secure medium-term growth. Underlying operating profit for Persimmon rose 13% to £172 million. Persimmon's homes are priced significantly below its largest competitors, and the first-half profit beat market expectations as demand from private buyers picked up. Persimmon anticipates completing the sale of 11,000 to 11,500 homes this year, and around 12,000 in 2026.
References: 1. Bank of England Base Rate 2. Mortgage Rates 3. Lenders Lower Fixed Rates 4. Bank of England Cuts Base Rate 5. Mortgage Rates and Housing Demand
- The easing of mortgage rates by the Bank of England's base rate cuts, due to signs of a struggling UK economy and inflation concerns, can potentially improve affordability for buyers, thus increasing housing demand.
- Persimmon, a leading UK housebuilder, has been strategically investing, such as acquiring new land at excellent margins, to boost sales and profit, a move that reflects the company's focus on driving improvements for medium-term growth.
- The increase in the number of sales outlets by Persimmon, now numbering 277, is a strategic move to reach its 300-outlet target, showing the company's commitment to expansion in the real-estate business.
- Despite the significant rise in Persimmon's pre-tax profit, average selling price, and forward sales, the company has warned of continued pressure on margins due to diminishing embedded build cost inflation, ongoing affordability constraints, and increased industry-wide costs, highlighting the challenges in the finance and investing sector.
