Persimmon says housebuilding market is 'stable' and sees signs of hope for mortgage lending

Published 05th Jul 2011

Housebuilder Persimmon has declared market conditions 'stable' despite a fall-off in sale completions and average prices.

The York-based company sold 4,439 homes in the first half, against 4,657 in the same period last year, although it expects volumes to pick up from here and be flat overall in 2011.

The average selling price was £162,000 compared with £169,000 last year, but more sales of larger detached houses are expected to come through in the second half.

Private sales reservations since April have been 6% higher than last year and the forward sales order book is now £725million, against first half turnover of £715million.

Shares in Persmmon are down 6.65p at 485.05p in trading today.

Although Persimmon described the market as stable, it believes it is still being held back by pressures on mortgage lending.

'Any meaningful increase in industry output will only occur with a significant improvement in the currently constrained mortgage lending conditions,' it said. 'We continue to see some modest improvement in mortgage lending with a greater number of higher loan to value products available in the market.'

The group received £35million of funding from the Government under the FirstBuy scheme where the housebuilder and the state stump up the deposit between them - the largest allocation given to a housebuilder under the scheme.

It was launched because mortgage lenders have demanded bigger deposits, which is making it harder for first-time buyers to get on the property ladder.

Persimmon, which operates from 25 regional offices, also bought an additional 7,500 plots over the period, which included 800 plots at Gatwick and 200 at Whinmoor in Leeds with the two sites expected to generate 'superior returns'.

Net borrowing at the end of the first half fell to £15million, down from £122million, despite the additional land buying, while underlying profit margins for the first half rose 1% on last year to 9%.

'Today’s statement from Persimmon does not blow the lights out and at first glance is below expectations,' said Anthony Codling of broker Oriel Securities.

'The highlight of the statement in our mind is the debt position, down to around £15million...which when coupled with the group’s five year £300million credit facility provides the group significant flexibility in the land market.

'In the past Persimmon has suggested that you can have too much land, however interestingly land purchases exceeded completions in the period. We are believers in the long landbank strategy and welcome landbank growth in a period where volumes are close to the cyclical lows.

'We would use any weakness in the stock today to increase our exposure to Persimmon.'

Robin Hardy of broker Peel Hunt said: 'The lower sales leave a lot to deliver in the second half. We remain concerned about the group’s high regional exposure, the high use of shared equity and in common with its peers we see inadequate returns. We remain a seller.'

Source: ' ThisIsMoney '

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