Persimmon, the housebuilder, has posted a 14 per cent reduction in forward sales for early 2008, blaming challenging market conditions, but believes that falling interest rates will spur a recovery.

Forward sales into 2008 were £603 million, down from £701 million last year, following on from the lower level of sales achieved over the last 3 months of 2007. Legal completions during 2007 were 5 per cent lower than 2006 at 15,905 from 16,701.

In early trading the company's shares were down 3.5 per cent, or 23p, at 628.5p.

The firm said that lower consumer confidence and the tightening of the credit markets had reduced activity towards the end of 2007 but that it expected a change of direction in interest rates and the typically busy spring selling period ahead to lead to a pick-up in the UK housing market.

Persimmon, which is based in York, said that it was well set to take advantage of the market if and when it picked up and that it believed that the "underlying fundamentals for our industry remain intact and supportive".

It said that it was operating from 7 per cent more sites than in January 2007, which it said should support its sales position this spring. It added: “It is too early in the new year to predict exactly how the market will develop over the next few months. However, we are confident that our focus on cash management through these more challenging times will ensure that when the market improves we are well set to take advantage of it.”

It said that despite current market conditions it would deliver an increase in pre-tax profit for 2007, in line with the mid-range of analyst expectations. It added that it had improved operating margins for the year and still planned to increase its full year dividend by a minimum of 10 per cent.

Persimmon will report its full results for 2007 next month. The company posted record pre-tax profits of £281.1 million in the first half of 2007, but in August it warned that the market was challenging and conditions have worsened since then.

The housing sector slumped throughout last year as the global credit crunch led to banks tightening lending criteria, which made it more difficult for consumers to get a mortgage. Fears that house prices may decline has also put people off committing to buy a house.

Persimmon's average selling price, however, increased to £189,558 from £188,129.

Keith Bowman, an analyst at Hargreaves Lansdown, said that overall there were more positives than negatives from the company's trading update but that the situation could still worsen.

"The broader housing market indicators continue to deteriorate and whilst profits at Persimmon are for now bucking the trend, investors appear to be taking the view that it is only a matter of time before reductions are seen," Mr Bowman said.

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