Persimmon welcomes mortgage rate cuts - but admits housing market remains 'challenging' in tough economic times.

Housebuilder Persimmon predicts the mortgage market will remain 'challenging', reflecting broader economic troubles and the shortage of affordable deals.

But it welcomed recent rate reductions by lenders, which are widely believed to be down to the Treasury and Bank of England's efforts to get loans flowing via their £80billion Funding for Lending scheme.

Persimmon generated a 65 per cent hike in recent profits as it battled a sluggish market by building family homes in affluent areas and taking advantage of Government-led initiatives to bolster housing sales.

As well as seeing 'good levels of customer interest' in the NewBuy scheme, which helps people with small deposits buy newly-built homes, the group has also been helped by the FirstBuy shared equity scheme, which focuses on getting first-time buyers on the housing ladder.

Persimmon says that due to FirstBuy it has a shared equity interest in 30 per cent of its first-half sales, although this is expected to fall in the second half.

Average selling prices rose 7 per cent to £171,206 in the first half, helped by Persimmon's strategy of building more family homes, while the number of completions rose 6 per cent to 4,712.
The group's margins were boosted by more than three percentage points to 12.2 per cent as it also benefited from building on cheaper land acquired since the financial crisis.

Persimmon's profits beat City hopes but its shares opened 6.5p lower at 698.5p as traders eyed the slowdown in summer sales with caution.

Income shares watch: Persimmon's strategic plan involves the payment of £6.20 per share of surplus capital to shareholders over the next nine years. The first payout of 75 pence per share is scheduled in June 2013. The shares currently yield 1.44 per cent.
View from the CityRichard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, said: 'Persimmon continues to strive to regain its former glories.

'Whilst much of today’s news was trailed in the July trading update, the key metrics are nonetheless impressive, with noticeable gains in revenues, legal completions, operating margins and cash generation.

'The group’s cash position has now turned net positive from negative, whilst the multi-year return of surplus cash to shareholders is a sign of management intent and confidence.

'Next year’s initial dividend will, at today’s price, provide a double digit yield, which medium term may be of interest to income seeking investors. On the downside, the wider economic picture cannot be ignored, whilst the very availability of mortgage finance remains moot.'

Sterling have, however, just agreed sales on the sort after Pavilion Gardens development by Charles Church, the 'high end' brand of Persimmon and found demand for this exclusive address was overwhelming. Benjamin James Bird BA(HONS)MNAEA MARLA of Sterling comments:

'We are finding demand for properties between £500,000 and £1 million excellent, however this is still a very demanding market with buyers only viewing those which are priced correctly and are presented to a good order throughout. Those homes which are as little as 3-4% overpriced are not even getting viewings so pricing strategies are very important in the current climate.'

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