The UK housebuilders have rallied between 16% and 25% in the last month. Lenders have recently lowered mortgage rates below the Bank of England’s 4.5% policy rate, anticipating multiple rate cuts in 2025, which has helped boost homebuilder shares.
Why it matters: The UK government’s October budget halted housebuilders’ positive momentum in 2024, with the new spending plans and tax hikes proving larger than anticipated. At the time, we felt the drop in investor sentiment for housebuilders contrasted with generally firming conditions in the housing market.
- Trading updates from the major UK housebuilders have affirmed our view that the budget was not enough to destabilize the housing cycle recovery. Sales rates have broadly met or exceeded expectations and input cost inflation is under control.
The bottom line: No-moat Persimmon PSN remains our top pick, trading at 40% discount to our fair value estimate, though we see value across our coverage of the industry with all stocks trading in 4-star or 5-star territory.
Coming up: Investors are pricing in a second cut to the BOE policy rate when the Monetary Policy Committee meets on May 8. A cut larger than 25 basis points could give the shares a further boost in the short term.
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