Persimmon has upgraded its annual profit forecast after building more houses and increasing its prices, with nearly half the homes sold using the government’s help-to-buy scheme.
Britain’s second-biggest housebuilder reported a 4% rise in revenues to £3.7bn in 2018, after completing 406 more homes than a year earlier, increasing the total by 3% to 16,449. The average selling price for private homes rose 2% to £238,877. The company said the housing market was underpinned by robust employment levels, low interest rates and competitive mortgages.
Persimmon is one of the main beneficiaries of the taxpayer-funded help-to-buy scheme, which supported 48% of the firm’s house sales last year, similar to 2017. When the scheme, which was first launched in 2013 by the then chancellor, George Osborne, was extended in 2017, a report by Morgan Stanley found that the £10bn of taxpayers’ cash had mainly benefited housebuilders, rather than buyers, by pushing up prices.
Persimmon, which owns the upmarket Charles Church brand, said 2018 profits would be “modestly” above market forecasts. Analysts have been forecasting pre-tax profits of around £1.07bn, against £966m the previous year.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “Persimmon is still selling more homes at higher prices, but the rate of growth is slowing. That’s to be expected in a cooling property market and following on from a pretty good run which has seen the housebuilder return prodigious amounts of cash to shareholders.”
It was Persimmon’s first trading update since it ousted Jeff Fairburn as chief executive in November, four months after he collected a £75m bonus. The payout made him the best-paid FTSE 100 boss and sparked an outcry about boardroom excess. Persimmon asked Fairburn to resign because the controversy was having a “negative impact on the reputation of the business”.
David Jenkinson, who is acting as interim chief until a permanent appointment is made, collected a payout worth £40.5m from the same bonus scheme, which paid out £500m worth of shares to 150 senior staff.
Government figures released on Tuesday showed that construction began on 44,740 new homes in England in the third quarter of 2018. This was up 12% on the second quarter and took the overall figure in the first nine months of the year to 140,440, the strongest result in more than a decade.
But Hansen Lu, a property economist at Capital Economics, was sceptical that this surge would be sustained. He pointed to a Home Builders Federation survey for October, which suggested sharp falls in newbuild site visits and reservations, prompting builders to use more sales incentives.
Jenkinson said it was harder to sell larger, four-bedroom houses, particularly in the south-east, but he sounded an upbeat note ahead of the key spring selling season despite “increased levels of uncertainty” around Brexit. Persimmon’s forward sales reserved at the end of last year was up 3% at nearly £1.4bn. Rival Taylor Wimpey was similarly upbeat about its outlook last week.
Both housebuilders are more cautious when it comes to buying land. Persimmon said it was taking a selective approach and Taylor Wimpey revealed that it had walked away from or was trying to renegotiate 2,000 plot purchases, equivalent to about 11% of the total land it bought last year.
Khalaf said a disorderly withdrawal from the EU would affect the UK housing market. “That’s particularly the case if the Bank of England felt it had to raise interest rates to defend sterling, which would increase mortgage rates and make buying a property even less affordable, without an adjustment to house prices,” he said.
“By the same token there is a lot of bad news baked into the share prices of the housebuilders, and a positive resolution to Brexit would see relief flooding this part of the market.”
To get around shortages of key building materials, Persimmon has opened a brick factory near Doncaster to produce 80m bricks a year and has plans to make roof tiles at the same site. It is the first UK high-volume housebuilder to invest in its own brick and tile factory.