The UK housebuilding sector is poised for significant changes following Labour's landslide election victory and the anticipated reduction in base rates.
Stifel's recent research note outlines several key developments and forecasts for the sector, reflecting the expected impact of new policies and economic shifts.
Immediate policy changes and their implications
One of the immediate changes expected under the new Labour government is a revision of the planning system by the end of July. Labour plans to restore local housing targets, reversing recent changes made under the Conservative government.
This move aims to streamline the planning process and increase housing output. The revised National Planning Policy Framework (NPPF) will likely play a crucial role in this transformation, with Labour's manifesto emphasising rapid implementation to address housing shortages.
Additionally, Labour's agenda includes a review of green belt policies and a "first dibs" scheme to prioritize local buyers. These initiatives are expected to further facilitate housing development and accessibility, potentially boosting the sector's growth prospects, according to the Stifel analysis.
Anticipated base rate cuts
The financial markets are forecasting a significant probability of base rate cuts, with a 64% chance of the first reduction occurring at the Bank of England's next meeting on August 1. This probability increases to 90% by the meeting on September 19, says Stifel. These anticipated cuts are expected to lower mortgage rates, encouraging sidelined buyers to enter the market and improving overall sentiment towards housing investments.
The next two inflation reports, scheduled for July 17 and August 14, will be critical in shaping expectations for future base rate adjustments. If inflation aligns with the consensus forecast of remaining around 2.0%, it will likely reinforce the case for further rate cuts, the investment bank said.
Outlook and upcoming announcements
Stifel has initiated coverage on nine UK housebuilders, maintaining a positive outlook for the sector. The US bank believes that the industry is at the beginning of a new cycle, with favourable conditions for house prices, volumes, and margins. The restoration of mandatory housing targets is expected to be a quick win for the planning system, potentially leading to increased industry output and enhanced market stability.
In the next five weeks, six major housebuilders - Vistry, Barratt, MJ Gleeson (LSE:GLE), Taylor Wimpey, Persimmon, and Bellway - are expected to provide updates. These reports will likely offer insights into current market conditions and the impact of the election on consumer behaviour. Notably, Taylor Wimpey and Persimmon have indicated that their first halves will be weighted, reflecting short order books and the last of the margin pressures from build cost inflation.
At a glance
Vistry: Expected to maintain a similar H1/H2 split as in 2023, reflecting stable operational performance.
Barratt: Likely to provide new volume guidance for FY2025 during its results meeting in September.
MJ Gleeson (LSE:GLE) and Bellway: Both are expected to align with previous guidance, indicating stable market conditions.
Additionally, companies such as Taylor Wimpey and Persimmon are not expected to revise volume guidance for 2024 significantly, focusing instead on building up their order books for 2025.
Sentiment and initiatives
Stifel's positive thesis for the sector is supported by the expectation of increased demand and improved market sentiment following Labour's election victory. The firm's analysis suggests that the real house price adjustment has been sufficient, and Labour's commitment to restoring national mandatory housing targets will facilitate a more efficient planning system. This is anticipated to lead to higher housing output and better market dynamics.
The next few months will be crucial for the UK housebuilding sector as it navigates these policy changes and economic adjustments. With potential base rate cuts on the horizon and a government committed to addressing housing issues, the industry appears well-positioned for growth. However, continuous monitoring of policy implementations and economic indicators will be essential for stakeholders to make informed decisions.