Britain’s mortgage crunch is reversing the fortunes of its once-biggest housebuilder Persimmon Plc, whose reliance on first-time buyers has turned from a boon into a drag on its market value.
The firm is expected to be kicked out of the UK’s top equity index in next week’s reshuffle, ending a decade-long stay. That’s on the back of a collapse in first-time buyer deals, which now account for about a third of the developer’s customers, as the highest mortgage rates since the 2008 financial crisis and a cost-of-living squeeze hit demand.
Persimmon, which slashed hundreds of jobs in the first half of the year in the face of weak demand, has said its forward sales dropped 30% year-on-year in roughly the first seven months of 2023. Berkeley Group Plc, which builds far fewer homes per year than its main three rivals, has felt less of a sales shock due to its focus on more affluent, London-based customers.
“Less dividend policy support, concerns of structurally declining margins and less land with planning have all conspired against the share price,” said Aynsley Lammin, a building and construction analyst at Investec. Companies benefit from being in the FTSE 100 because tracker funds have to buy their shares, while stockpickers who are benchmarked against the index also have an incentive to own them. Demotion can lead to selling as funds adjust their holdings to match the benchmark’s allocations.
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