While property analysts have their own nuanced takes on how the UK’s major quoted housebuilders are performing, they all agree on one thing: despite some positive signs of improvement in the sector, there is no way the Labour government can hit its 1.5-million-new-homes target by the end of this parliament.

Barratt Redrow: the UK’s biggest residential developer is driving innovation at its timber-frame factory in Derby

“If they get to 300,000 a year by the end of the parliament, then that’s the best-case scenario,” says Sam Cullen, equity research analyst at Peel Hunt.

“There isn’t the land, affordability is not in the right place, we don’t have the labour or materials and we don’t have the demand side to do it.”

Aynsley Lammin, equity research analyst, building and construction, at Investec, agrees. He says 300,000 homes a year towards the end of this parliamentary term is a “maybe”, but adds “there’s no way they’re going to be building a million and a half homes”.

While it is does not look promising for one of Sir Keir Starmer’s major pledges, there is better news for the housebuilding sector overall.

Alastair Stewart, equities analyst and consultant at Progressive Equity Research, believes the tone of the latest round of trading updates from the ‘big five’ housebuilders – Barratt Redrow, Persimmon, Taylor Wimpey, Bellway and Vistry – continues to be “fairly positive” but “not any more positive than the previous round” (see box below).

If current trends continue, I expect more optimism around price inflation
Sam Cullen, Peel Hunt

He says: “Guidance for volumes in the current year were all in line with market expectations. For those companies not going through structural changes – in this case, Barratt Redrow and Vistry Group – the current private reservations per site per week was in a range averaging out around 10% above last year and the general advice was that volumes would continue to rise at about 5% to 10%.

“We’re still seeing very modest low single-figure percentage house price inflation, but input cost inflation is proving stickier than some had hoped for.”

Cullen adds: “Trading has been pretty solid. Sales rates are probably firmer than we might have expected six months ago, and interest levels are still improving.

“One thing that surprised us a little bit is, given where the sales rates are, whether they might be a little bit more aggressive on pricing. Rates are still running at 4% or 5% across most of the sector. So, if the current trends continue, I expect to see a little more optimism around price inflation.”

Standout performers

For Lammin, there were three standout developers during the latest round of numbers. “Persimmon came out with some good news around site numbers,” he says. “The sites were up 5% and trading was OK. So that was quite positive.

“For Barratt, they kind of reiterated their view that there’ll be an increase in site numbers into next year, then the next financial year. So I think Barratt, Bellway and Persimmon have all come out with good trading news flow and positive support from site numbers; whereas Taylor Wimpey has probably been a little bit kind of lagging in terms of site numbers.”

UBS has perhaps the most optimistic view of any City analyst team, issuing a raft of buy notes following the latest trading updates. In a note to its customers, the Swiss banking giant points to an “improving backdrop”, making positive noises around Barratt, Taylor Wimpey, Persimmon and Bellway.

From a valuation perspective, UBS notes that the sector is trading at 0.9 times tangible net asset value, compared with a long-term average of around 1.25 times, meaning there should be some upside to share prices.

Shares across the sector have fallen since last autumn, even though guidance on sales rates in recent results has offered encouragement heading into the spring selling season.

It’s my view that the big companies will continue to get bigger
Alastair Stewart, Progressive Equity Research

“The key question from a supply-side perspective is how quickly these changes will be seen by housebuilders to drive incremental sales outlet openings,” says a UBS analyst. “The general view from UK housebuilders is that a material increase in planning permissions will take some time, but planning is becoming incrementally more supportive.”

UBS is also encouraged by the supply-side backdrop as government policy changes attempt to speed up planning and remove unnecessary blockers to infrastructure.

This view is only partly shared by Stewart, however. “Planning continues to improve according to pretty much all of them,” he says. “But beneath the surface, anyone involved in urban developments is complaining about the backlog in gateway approvals at the Building Safety Regulator for 18m-plus towers.”

Top five consolidation

As for the near future, Stewart believes the big five will continue to consolidate their position. “The top five housebuilders now account for around a third of all housebuilding output,” he adds. “It’s my view that the big companies will continue to get bigger.

“This is partly because of the economies of scale in planning and improved buying power, but the big guys can better resource research and development.

“The latter point was demonstrated on a visit recently to Barratt Redrow’s timber-frame factory – not so much the plant itself, but the thinking that drives innovation. It’s the same for the rest of them.”

There are two other key factors providing a sense of positivity for the sector. The Bank of England’s base rate cut to 4.25% earlier this month was the fourth since last August and is boosting optimism among buyers.

Now that the base rate is a full percentage point below the 5.25% it first rose to in August 2023, mortgage rates are becoming more affordable, even if they still remain significantly higher than the 0.1% of March 2020 – a level no one appears to believe we will see in the foreseeable future.

Along with falling rates, the slow but steady impact of the Financial Conduct Authority’s (FCA’s) effort to encourage banks and building societies to increase lending multiples for homebuyers means demand could be in for something of a boost.

Over the past few weeks, groups including Nationwide and Santander have lowered mortgage affordability stress rates in response to calls from the FCA, with more institutions expected to follow.

There is also the fact that, on paper at least, the first-time buyer (FTB) market looks more robust than ever. Figures from the Bank of England show that lending to FTBs reached a record high at the end of 2024, accounting for 29.6% of all mortgage lending in the final quarter – the highest share since the data was first collected in 2007.

However, even with these boosts, affordability does remain an issue for some, and for one developer in particular, according to Cullen.

“The firm most exposed to those affordability headwinds is probably Crest Nicholson, because of its geographic split and [the fact] that it is in that mid-premium segment,” he explains. “But the caveat is that this situation has the potential to reverse should the FCA continue this review into the mortgage market and stimulate members to be more aggressive in their lending.”

Not for the first time, there are many ‘ifs, buts and maybes’ coming from analysts regarding the state of play among housebuilders; but alongside the caveats, there is something of a more positive feel to the mood.