Struggling Persimmon takes new hit of £600m

In a trading update originally planned for mid-November, the beleaguered firm painted a bleak picture of the market as house prices and land values tumble. The grim news came two months after Persimmon reported a devastating 87% slump in first-half profits to £36.9 million. It has axed 2000 jobs this year.

Chief executive Mike Farley said conditions were now even worse following the unprecedented turmoil in the financial system triggered by the collapse of Lehman Brothers in September.

"Since we reported our half-year results on 21 August, we have encountered deteriorating trading conditions," he said. "The uncertainty created in the housing market by the turbulent and uncertain outlook in financial markets has had a negative impact on all our regions across the UK.

"The availability of mortgages has continued to be very restricted, and cancellation rates have increased to 35% (from 20%) over recent weeks."

Shares in Persimmon slumped 17¼p to an eight-year low of 200p, having peaked last year above 1500p. Rival builders were also under pressure with Barratt down 9½p or 19% to 41p.

Persimmon, which is slashing prices and offering deals to encourage housebuyers into the market, insisted its results for the full year "will be in line with expectations".

Analysts forecast profits of £135 million, a fraction of the record £585 million it made in 2007. The firm expects house prices to fall 10% in the second half of the year, having dropped 5% in the first half. As a result, it wrote down the value of its £2.5 billion land bank by £600 million considerably worse than August's £40 million.

Persimmon is targeting 10,000 house sales this year, down from 15,905 in 2007. With the number of private house sales tumbling, it is focusing on social housing, where it expects volumes to be up 25% this year.

Mortgage lending has halved this year as banks and building societies ration home loans. Having criticised the Government in August for its confusion over stamp duty, Farley today welcomed efforts by ministers to increase mortgage availability to 2007 levels. "Until this begins to take effect, we do not expect to see any improvement in trading conditions," he added.

Farley said the update was brought forward from 18 November "in view of the impact the recent significant events in financial markets have had on the UK housing market, in particular the further pressure being experienced on selling prices, and, consequently, residential land values".

Rival Bellway recently said conditions in the housing market were the worst they have been for decades as the market collapsed in the face of the deepening financial crisis.

Hometrack today said house prices in England and Wales were 7.3% lower this month than in October last year the biggest fall since its records began in 2001. London was worst-hit.