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Monthly mortgage costs doubled for some first-time buyers, Persimmon says

The monthly cost of mortgage payments for some first-time buyers has approximately doubled over the past year, housebuilder Persimmon said as it warned over a slump in housing sales in recent months.

The British builder revealed that its sales took a hit over the last three months of the year because of weaker customer demand.

Concerns over the economy, mortgage rates and the cost of living “weighed heavily on consumer confidence”, Persimmon said in its latest trading update to investors.

The builder’s private net sales dropped to 0.3 per outlet per week in the fourth quarter of the year, compared to 0.77 in the same period last year, indicating that it struggled to sell new properties following the former Chancellor’s mini budget at the end of September.

Overall in 2022, private net sales were 0.69 per week for the year, down from a rate of 0.83 in 2021.

It has been particularly tough for first time buyers to get on the housing ladder, having seen the Government’s Help to Buy scheme end last year and borrowing costs soar for new home loans.

First time buyers make up about half of all Persimmon’s customers.

The builder said that a property costing £250,000 had an estimated monthly mortgage cost of £753 in March, based on a Help to Buy customer with a 5% deposit, a 75% loan-to-value mortgage at a rate of 1.53% over 25 years.

Whereas in December, the same property had an estimated monthly mortgage cost of £1,488, based on a buyer with the same deposit and mortgage term, but at a 95% loan-to-value and a much higher mortgage rate of 5.71%.

Persimmon recently launched a new scheme where it would cover up to 10 months of a buyer’s mortgage, to give people “breathing space” and help them with the rising cost of living. It is available for people who reserve a Persimmon home by January 31.

Concerns over the economy, mortgage rates and the cost of living “weighed heavily on consumer confidence”, Persimmon said in its latest trading update to investors (Alamy/PA)
Concerns over the economy, mortgage rates and the cost of living “weighed heavily on consumer confidence”, Persimmon said in its latest trading update to investors (Alamy/PA)

It said it saw a strong increase in website enquiries in the first week of the offer, but that it is too early to tell when consumer demand will recover.

Across the year, the group saw an uplift in new home completions by 2% year-on-year, and an increase in the average selling price by 5%, which now sits at £248,600.

However, its forward sales declined by more than a third, to £1 billion from £1.6 billion in 2021, reflecting lower sales rates and more cancellations in the second half of the year.

Dean Finch, Persimmon’s group chief executive, said: “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.”

Mr Finch reassured investors that, in the long term, demand for new homes remains strong.

On Wednesday, rival housebuilder Barratt warned of a “market slowdown” housing market that had led it to cut back significantly on purchasing new land.

Persimmon also revealed that it was taking a “highly selective approach” to land-buying, investing only where it sees the very best opportunities, and renegotiating or pausing the start of around 30 sites this year.

Nevertheless, investors were optimistic in the prospects of Persimmon and its share price was up by more than 6% on Thursday morning.