Persimmon warns national insurance burden will bite into profits

Persimmon expects to build more houses next year but has warned shareholders that a potential £15 million hit from national insurance contributions, plus other extra costs, will dent profit margins.
The FTSE 100 housebuilder, one of the biggest in Britain, said that it was “seeing some signs of build-cost inflation beginning to emerge” in meetings with suppliers.
Andy Duxbury, chief financial officer, told analysts that increased labour costs would drive that. He said: “There is a significant cost coming through because of national insurance and we have to see how that works its way through the system. We’d expect the direct cost to us will be around £5 million, but the bigger impact is what comes through the supply chain, which could be another £10 million on top.”
From April next year, the rate of employers’ national insurance contributions will rise by 1.2 percentage points to 15 per cent, and the level at which employers start to pay national insurance for each employee will fall from £9,100 to £5,000.
Persimmon is also facing other cost pressures, which it expects will stop its profit margins from recovering as fast as some had hoped. On some homes, it is having to spend as much as £9,000 to satisfy nutrient neutrality regulations, while at other sites local planners are insisting that it installs heat pumps at a cost of £5,000 per house.
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“I’m not trying to scare the horses with inflation,” said Dean Finch, Persimmon’s chief executive. “We’re just putting it on [shareholders’] radar screen because it’s obviously on ours. We expect to see strong profit growth next year and also growth in margins. I’m just reminding you that we’re dealing with a number of things that may dampen the speed of recovery in margin compared to some people’s expectations.”
The cautionary note sent Persimmon shares down 127½p, or 8.7 per cent, to close at £13.43½, their lowest since May.
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Persimmon was founded in 1972 by Duncan Davidson, building houses in and around York, where it is still based. It is on track to deliver 10,500 homes this year: 600 or so more than in 2023, but a third fewer than in 2022.
All of the housebuilders struggled last year given the rapid increase in mortgage rates, which sapped the confidence of potential buyers. However, demand has picked up this year as mortgage rates followed interest rates lower.
Since the start of July, Persimmon has been selling 0.7 homes per week at each of its 260 or so developments, almost 40 per cent more than over the same period of 2023.
As a consequence of that pick-up, Persimmon’s order book stands at £1.45 billion compared with £1.04 billion this time last year. Finch, 57, said he was “delighted with the performance of the business” over the past 12 months.
The improved demand has allowed the group to put up its prices by about 5 per cent over the past year to an average of £291,400. However, Persimmon is still having to offer more incentives, such as free carpets or deposit contributions, than it has done historically.
Persimmon is generally trading better at its northern sites, where prices are rising fastest and it is using fewer incentives. The housing markets in the south, “particularly the donut around London”, are less strong, given the higher house prices and larger mortgages needed there.
Persimmon has thanked the chancellor for helping it to end a 37-year wait to buy a large plot of land on the outskirts of Cheltenham.
The developer had been looking at the site on the northwestern edge of the Gloucestershire town since the 1980s but had struggled to get a deal over the line owing to the complexities of the site and the fact the land is owned by multiple families.
However, Persimmon managed to strike a deal in recent weeks, which it put down to landowners wanting to sell up before any tax changes in last month’s budget. “Thank you Rachel Reeves for helping us get that one across the line,” Finch said.
The Cheltenham site covers 131 acres and will be a joint venture with Bloor Homes to build more than 900 homes there, although a detailed planning application will not be submitted for another 12 months or so.
Finch said many other landowners had also approached Persimmon about buying their fields over summer. “We’ve seen a really busy last three months in [the] land [market],” he said. “I think concerns around the budget and, in particular, capital gains tax, may have driven some of that. We saw close to half a billion pounds of land opportunities come to us in the three months to the end of October.”