Homebuilders report slumping profits as housing market stutters

Persimmon has become the latest UK homebuilder to warn on profits and completions as higher mortgage rates cool down the property market.

house construction site
(Image credit: Getty Images)

Persimmon has become the latest homebuilder to warn on profits and completions as mortgage rates put pressure on the housing market

In the space of a few weeks, Persimmon, Bellway, Berkeley, Taylor Wimpey and Barrett Developments, which together have been responsible for building around 30,000 homes a year in the past, have all warned they’re planning to cut construction this year off the back of lower demand. 

It comes after 14 consecutive increases in interest rates by the Bank of England (BoE), which have risen to a 15-year high of 5.25% and pushed mortgage costs higher for homeowners.

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UK housing market data from RICS shows more signs of a slowdown in property, as agreed sales fell to -44% in July, down from -36% the previous month.

The pressure of high interest rates has choked both buyer demand and mortgage applications, meaning that price declines reached levels last seen in 2009.

The average two-year fixed mortgage deal is now 6.83%, according to Moneyfacts. The typical five-year deal stands at 6.34%.

House price slump hurts Persimmon 

Persimmon has announced it reduced its headcount by almost 300 in the first half of the year and further reviews are ongoing to cut costs by as much as £25m annually.

Home sales dropped to 4,249 in the six months to June, compared with 6,652 in the first half of 2022 while underlying operating profit fell to £152.2m from £440.7m.

“Against a backdrop of higher mortgage rates, the removal of Help to Buy and significant market uncertainty, Persimmon has delivered a robust sales rate excluding bulk sales whilst growing the private average selling price in our forward order book and also securing cost savings,” chief executive Dean Finch says.

Still, the average price of each new home sold by the business rose from £245,597 to £256,445.

"As we have seen elsewhere, trading conditions have waned over the last 4-6 weeks with sales rates falling to 0.41. Pricing appears to remain resilient, but the next big test for the market will be the autumn selling season," says Investec analyst Aynsley Lammin.

Persimmon’s downbeat assessment of the housing market comes only a few days after Bellway announced it would shut two of its divisions and slow activity in a third, as it predicted that house completions would “decrease materially” over the next 12 months.

The company said it completed 10,945 homes, down from 11,198, with an average selling price of £310,000, down from £314,399 the previous year. Reservations were also down, declining 28.4% in the year to 31 July.

The FTSE 250-listed group said it would update its forecast on volumes in its full-year results in October.

It warned that surging mortgage costs impacted sales in the final three months of 2022 when the UK was already reeling from the bonds crisis sparked by Liz Truss’ mini-Budget.

Bellway is also currently consulting on the closure of its London partnerships arm, which sees it working with housing associations, councils and private rental sector investors on projects, as well as its South Midlands division.

The move could see around 90 employees from the company's 3,000-strong workforce lose their jobs.

Dark clouds build over the housing market 

As well as Bellway and Persimmon, Taylor Wimpey has said it is planning to cut jobs in order to find savings of £20m a year.

While Barratt announced in July that it would build 20% fewer homes in 2024, and Berkeley has said its annual sales were expected to fall by a fifth.

Competitors Crest Nicholson and Vistry have said high mortgage rates were hampering demand from first-time buyers.

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Pedro Gonçalves

Pedro Gonçalves is a finance reporter with experience covering investment, banks, fintech and wealth management. He has previously worked for Yahoo Finance UK, Investment Week, and national news publications in Portugal.