Persimmon cuts value of land holdings by £600m as buyers walk away from deals

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The Independent Online

The housebuilder Persimmon has slashed the value of its land holdings by a further £600m, as it warned that conditions in the housing market had deteriorated after recent developments in the banking crisis.

Persimmon brought forward a trading statement to reveal that it anticipated house prices to tumble by 10 per cent in the six months to 31 December, which is double its previous forecast, and on top of the 5 per cent fall in the first half.

It also revealed that in recent weeks as many as 40 per cent of house buyers who have put down a deposit had walked away from intended purchases.

Mike Farley, Persimmon's chief executive, said that the events of September, such as Lehman Brothers investement bank going bust, Lloyds TSB's takeover of HBOS and the Icelandic banking crisis, have "undoubtedly had an impact on the market".

He added: "Since September we have managed to maintain our sales rates in terms of volumes, but are having to work harder to maintain the sales and we are doing this by more discounts and incentives. This has led to pressure on our margins and profits and caused us to look at our provisioning on our land bank."

Persimmon is offering buyers incentives, including buying their current home at a guaranteed price and helping customers, particularly first-time buyers, with their deposit. It is also offering shared equity schemes, where customers purchase 75 per cent of the house, for example, and buy back the rest in 10 years time.

Mr Farley said the restricted availability of mortgages continued to have the biggest impact. "We have never experienced this shortage of funding," said Mr Farley.

Persimmon said the value of land held for development has fallen by £600m to £1.7bn, as the fall in house prices accelerates. In August, it had written down the value of its land bank by just £40m.

Persimmon said it remains focused on increasing social housing volumes by 25 per cent this year

Shares in Persimmon rose by 10p to 227.25p yesterday, partly because the housebuilder said its underlying trading results for its full-year would be "in line with expectations". However, its shares have fallen by 75 per cent over the last 12 months.

Persimmon expects to legally complete the sale of about 10,000 homes this year. Sales revenues for the year to date, including legal completions, have come in at £1.8bn and the comp-any has taken a further £250m of sales already for 2009.

Mr Farley said that it is "operating within our banking covenants" this year and, as previously stated, it plans to refinance in the first half of next year.

He added that Persimmon was "fully supportive" of the Government's initiatives to increase mortgage availability to 2007 levels. However, he added: "I don't expect to see much change in the market place until 2009."