Shares of York-based house building giant Persimmon plc rose as much as 9% to £14.10 on Thursday as it announced it is offering new customers a “10 months mortgage free” deal and the firm flagged a generally better-than-expected performance for 2022.
In a trading update ahead of its final results for the year ended December 31, 2022, Persimmon said its forward sales position stood at £1 billion at the end of last year, down 36% from £1.6 billion at the end of 2021.
However, its average selling price rose 5% to £248,600 in 2022 and new home completions rose 2% to 14,868.
In its outlook, Persimmon said: “Higher mortgage rates, inflation, heightened market uncertainty and the end of reservations under Help to Buy in England, had a sharp impact on the group’s private sales rates in the fourth quarter and will have an adverse impact on the outlook for 2023.
“Taking together the absence of Help to Buy and the increase in mortgage rates, we estimate that the monthly cash cost of mortgage payments for some first time buyers has approximately doubled over the past year compounded by limited availability of high loan to value mortgages.
“While we are promoting initiatives to stimulate demand, including the recent launch of our “10 months mortgage free” customer offer, which generated a strong increase in website enquiries in its first week, it is too early to predict when there will be a recovery in demand.
“We remain focused on achieving quality returns rather than volume and we will provide a further update on the market outlook for 2023, at our 2022 results on 1 March.
“The group has entered this period of uncertainty with a strong balance sheet, including a robust cash position and industry-leading embedded margins in our land holdings.
“We currently anticipate average outlets will remain broadly similar during 2023 at 250-260 open selling outlets, although we have opportunities to increase this if demand improves as we progress through the year.
“The longer-term demand outlook for new homes remains favourable.
“We have made significant progress over the past two years in augmenting the Group’s longstanding commercial excellence with renewed operational capabilities.
“As a five-star builder, with private average selling prices below the market average, high quality land holdings, and a robust balance sheet, Persimmon remains well-positioned for the recovery when it emerges.”
Persimmon CEO Dean Finch said: “Persimmon has delivered a strong performance for 2022 which has been achieved despite headwinds from supply constraints in the early part of the year and a more challenging sales environment in the second half.
“We delivered 14,868 new homes to customers in the year, towards the top end of our guidance, whilst maintaining five-star quality.Customers remain at the heart of our business with our continued focus on quality and affordability.
“In the second half of the year, rising interest and mortgage rates, inflation and weaker consumer confidence began to impact customer behaviour across the housing market.
“This change in market conditions gathered pace in the fourth quarter and is reflected in the reduction in our recent weekly sales rates and a lower forward sales position as we enter the new financial year.
“However, with high quality land holdings, a strong balance sheet and an experienced management team, Persimmon is well placed to navigate this challenging short-term backdrop, whilst continuing to take advantage of any opportunities that may arise.
“The longer-term demand for new homes remains strong. We have made significant progress over the past two years in augmenting the group’s longstanding commercial excellence with renewed operational capabilities building a stronger, more sustainable business for the future.”