Persimmon cut its dividend and revealed it faced hundreds of millions of pounds in additional costs related to building safety, as higher mortgage costs cause a steep drop in housing sales.
Shares fell 8 per cent on Tuesday morning after the FTSE 100 company announced that it was scrapping its dividend policy in response to “increased uncertainty” and higher taxes.
Persimmon, one of the UK’s biggest housebuilders, said there were clear signs the housing market was slowing, revealing that the sales rate across its sites had fallen 20 per cent in the past six weeks while the number of buyers cancelling their home purchase had jumped by a third.
The average price of the company’s homes has fallen 2 per cent since July, while the £770mn value of sales agreed for next year is down a third on the £1.15bn it had agreed this time last year.
“There’s a hell of a lot of uncertainty out there,” said chief executive Dean Finch. “People have had mortgage offers withdrawn, not been able to get mortgages, rates have gone up.”
Persimmon did not announce details of its new dividend policy. Chris Millington, analyst at Numis, estimated that dividends could “almost halve” as a result of higher than expected costs and a slowing market.
Persimmon also announced a steep increase in the amount of cash set aside to cover the repair of blocks caught up in the building safety crisis sparked by the fire at Grenfell tower in 2017 in which 72 people died.
Earlier this year Persimmon said “that the £75 million provision set aside for the rectification works remains appropriate”. But on Tuesday, after lengthy negotiations with the housing secretary Michael Gove, the company raised its provision to £350mn.
Finch on Tuesday conceded that Persimmon had not adequately assessed its exposure to the crisis, as the company increased the number of buildings needing remedial work from 33 to 71.
“Why are there so many buildings out there we weren’t aware of? It’s a good question,” he said. “Records have been poor.”
Persimmon blamed the jump in costs on “the broader scope required by government, which has resulted both in an increase in the amount of work required and in the number of eligible buildings, and . . . a background of significant build cost inflation”.
Millington said that while the increase was partly down to a tightening of government rules, “to move from £75mn to £350mn looks unusual — it suggests the work done before was not rigorous enough”.
Gove, recently reappointed to the housing role by Prime Minister Rishi Sunak, has taken a combative approach to the sector. Speaking in the House of Commons this week, he put developers on notice that a deteriorating economy was no excuse for not making good on their “obligation” to fix defective buildings.
“It cannot be the case that economic conditions that affect us all are being used by developers or anyone else to shuffle off their obligations,” he said.
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