Financial turmoil risks damaging housing market recovery, warns major developer

A major housebuilder has warned that turmoil in financial markets risks denting confidence in the property market.

Persimmon, which built more than 10,000 homes last year, said ongoing ructions in the bond market were a sign that mortgage rates could stay higher for longer, which could derail the housing market’s recovery.

The cost of long-term government borrowing has rocketed to a 27-year high over the last week, while the pound is now at its weakest point in more than a year . Bond yields have surged in response to concerns about low growth and rising inflation in Britain. Investors are betting on fewer interest rate cuts this year in response, which would keep mortgage rates higher than previously expected.

Persimmon said: “We are mindful of evolving macroeconomic and geopolitical uncertainties, including the timing of future interest rate changes and the effect that they may have on our market and consumer confidence in the short term.”

Rachel Reeves’s October Budget has stoked concerns about the economy. Her record-breaking tax raid will push up inflation, according to the Office for Budget Responsibility (OBR). Business groups have also slashed investment and hiring plans in response to the Chancellor’s tax raid, raising fears about growth.

Persimmon said it expected the cost of building houses to rise by a low single-digit percent in 2025. Costs are rising in part because of an increase to employer National Insurance contributions (NICs) from April, which was announced in the Budget.

The industry also faces headwinds from a fall in the stamp duty threshold from £250,000 to £125,000 in April and the proposed building safety levy, a tax on new residential buildings to fund cladding work that is expected to raise £3bn. Persimmon said it was managing those challenges through its focus on cost control.

Persimmon said in November that signs of inflation were starting to emerge , driven partly by the increase in NICs. Changes to National Insurance will cost it £5m, on top of a £10m impact in its supply chain.

The company’s warning about the outlook came as Persimmon reported a strong 2024 . The developer built 10,664 homes last year, up 7pc on 2023. The average selling price of its homes grew by around 5pc to £268,500.

Full-year pre-tax profit is forecast to be around the upper end of the £349m to £390m range expected by the market.

Dean Finch, the chief executive of Persimmon, said: “Customer enquiries and sales rates have been consistently ahead of the prior year since the spring selling season.”

Shares in the company rose more than 5pc to top the FTSE 100 on the update.