UK house price boom brings Persimmon windfall of nearly £1bn

Britain’s biggest housebuilder, Persimmon, has announced profits of nearly £1bn in 2021, but cautioned that the Ukraine invasion could disrupt the the UK economy in the year ahead.

So does it build its full quota of “affordable” homes? – Owl

Jasper Jolly 

Persimmon’s profits jumped by nearly a quarter to £970m thanks to “positive pricing conditions” in every British region in which it operated, as the house price boom defied the coronavirus pandemic, it said on Wednesday.

Dean Finch, Persimmon’s chief executive, said he was “mindful of the growing risk of an economic impact as a result of the tragic conflict in Ukraine”, but that he expected continued house price rises to “mitigate build cost inflation”, suggesting higher costs for materials and labour would be passed on to buyers.

“The UK housing market remains supportive with demand continuing to exceed supply, favourable interest rates and good levels of mortgage availability,” he said.

Persimmon said it had some built-in protection from increased materials costs, which could be further escalated by the Russian invasion, because it had increased capacity at factories producing timber frames, bricks and tiles.

Vistry, the sixth biggest London-listed housebuilder, also announced bumper results on Wednesday, saying it had more than tripled its annual profits to £320m.

Housebuilders in the UK have benefited from years of strong demand, thanks to a dearth of new homes. Nationwide, the UK’s largest building society, reported on Wednesday that prices of homes on which it offered mortgages increased by 12.6% in the year to February, with the average price crossing the £260,000 mark for the first time.

Many analysts had expected the pandemic to end the extraordinary price increases, but a combination of unprecedented low interest rates and employment support schemes caused prices to defy lockdowns. The UK government indirectly fuelled house price growth by temporarily cutting stamp duty, a subsidy that has now been removed.

Housebuilders have already set aside the costs of removing flammable cladding, found to be a key cause of the Grenfell Tower fire that killed 72 people.

Persimmon built 14,550 new homes in 2021, 1,000 more than 2020 when housebuilding was temporarily disrupted by the first pandemic lockdowns. Its rate of private sales was 22% ahead of 2019, before the pandemic struck. Vistry built 8,600, more than in 2019.

Both companies expected to improve on 2022. Vistry said it predicted a “significant step up in profits and returns in 2022”. Persimmon said it would increase sales volumes by 4-7% in 2022, while keeping similar profit margins. That would suggest a return to above-£1bn profits, a level previously seen only in 2018 and 2019.

Persimmon shares gained 6.4% on Wednesday morning. Shares in Vistry, which was formed in 2020 from the merger of Bovis and Galliford Try, gained 6.6%.

Yet some analysts question whether the housebuilders’ strong run can continue over the next year. Consumer price index inflation has risen to its highest level in 30 years, squeezing household incomes, with more increases to come next month. Economists expect the Bank of England to increase interest rates further this year, which could also dampen demand.

“The backdrop is changing,” said Julie Palmer, a partner at Begbies Traynor, a restructuring consultancy. “House price growth this year is expected to be more muted and we have to question whether Persimmon will be able to absorb ever-increasing costs through higher selling prices.”

Vistry’s chief executive, Greg Fitzgerald, said there had been “strong demand across all areas of the business”. He added that the company had experienced “extended lead times and inflationary pressures on certain products”.