Building group Persimmon said this morning that plummeting sales had forced it to postpone all new building in the UK until the market started moving again – and it’s not expecting that to happen any time soon. In a grim statement ahead of today’s AGM, Persimmon said that sales in the first four months of the year were down 24% as the global financial problems have torpedoed confidence and undermined the mortgage market.
And worst of all, things seem to be getting worse rather than better. ‘Over the last three weeks the unprecedented tightening in the mortgage market has caused a further deterioration of the housing market, leading to lower sales volumes and increased cancellation rates’, the gloomy housebuilder said today. This tallies with the figures out yesterday from the British Bankers’ Association, which said that new mortgage approvals had fallen to their lowest level since its records began in 1997.
This is not really surprising. Mortgages have been getting more expensive almost across the board, and gloomy headlines about the credit crunch have been making us all a bit nervous, so many potential buyers are hanging on in the hope that prices are about to start falling. This has forced Persimmon to use big discounts to lure in the punters – which will take a big bite out of its profit margins.
Today’s news is particularly alarming because Persimmon is widely considered to be just about the safest bet in the housebuilding sector – it was the only company of its type to remain in the black during the last recession, and it has tended to outperform its rivals. So it’s no wonder that share prices across the sector have been plummeting this morning.
The only hope, according to Persimmon, lies in further government intervention. It welcomed Alistair Darling’s injection of £50bn into the money markets on Monday, but it thinks more needs to be done to get people buying houses again. ‘For this action to be effective it needs to result in an increase in the availability of credit for house purchasers, particularly first time buyers’, it said today. A reduction in interest rates would be a good start, but it also wants the Treasury to increase the threshold for stamp duty.
But in the meantime, Persimmon’s builders will be downing tools for the foreseeable future. Should provide a boost for the tea industry, if nothing else.