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Persimmon sales prices firm but outlook remains weak

Chartered surveyors are anticipating sales price inflation will fall into negative territory over the next 12 months
July 9, 2020

Persimmon (PSN) has revealed that house sales prices remained robust at the end of June, accompanied by a 15 per cent rise in the value of forward sales.

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However, a broader survey of the industry has pointed to pessimism over the prospects for prices over the next 12 months, which most chartered surveyors anticipate will enter negative territory, according to the Royal Institution of Chartered Surveyors (RICS), despite the chancellor Rishi Sunak's move to support the industry by slashing stamp duty this week.. 

Persimmon, which is the largest housebuilder listed in London, reported a 2 per cent rise in the average price of the 5,150 private homes that it had forward sold at the end of June, compared with the same time last year. But revenue was, unsurprisingly, down almost a third over the first half of the year as the volume of completions decreased by a similar proportion. 

Vistry (VTY), which owns the Bovis Homes brand, also reported that prices had remained firm at the end of June, but said margins would be impacted by lower operational efficiency and additional costs during lockdown, as well as an increase in anticipated development times. 

Persimmon also reported evidence of the pent-up demand that has been shown in broader industry data in the weeks since the housing market was restarted, with average weekly net private sales reservations in the six weeks since mid-May 30 per cent higher than the same time last year.  

Chartered surveyors responding to the RICS June UK Residential House Market Survey said enquiries, agreed sales and instructions all improve noticeably in June. A headline net balance of +61 per cent of survey participants, defined as the proportion of respondents reporting a rise in prices minus those reporting a fall, saw a rise in enquiries over June, marking a strong rebound compared to readings of -7 per cent and -94 per cent posted in April and May, respectively.

However, a net balance of -15 per cent of respondents saw some degree of sales price decline in June and most surveyed anticipated a flat to marginally negative trend in national house price inflation over the next 12 months. 

With around half of its sales made to first-time buyers, the extent to which Persimmon is able to maintain sales momentum will also depend on whether the government concedes to appeals from housebuilders, including Redrow (RDW) and Barratt Developments (BDEV), to extend the help-to-buy scheme in its current form beyond March 2021. 

The government has already demonstrated a willingness to implement stimulus measures in an attempt to boost the housing market, with chancellor Rishi Sunak increasing the stamp duty threshold to £500,000, from £125,000, for homebuyers in England and Northern Ireland until March. 

But given first-time buyers only paid stamp duty on purchases over £300,000, the chancellor’s measures will mostly help those buying without a mortgage, said Savills (SVS) residential research director, Lawrence Bowles. 

“The issue is that stamp duty is just one of the barriers you face when buying a home,” he said. Reduced access to mortgage finance remains an impediment to demand, he added. 

What’s more, the stamp duty changes will end on the same day as the help-to-buy restrictions take effect and the 2 per cent surcharge on non-UK resident homebuyers is introduced, which will all impact transaction volumes next year, he said. “So you have got a lot of factors slightly changing on 31 March that for various different types of buyers mean its more expensive and difficult to buy a home,” he said.