UK housebuilder shares have fallen to valuation levels not seen since the aftermath of Liz Truss's disastrous 2022 mini-budget, as soaring gilt yields raise fresh fears about the mortgage market, according to analysts at Jefferies.
The investment bank says the sector is trading at price-to-net tangible asset value (P/NTAV – a standard measure comparing a company's share price to the value of its physical assets) levels comparable to late 2022, when mortgage rates surged by 3-4 percentage points and the housing market seized up.
The catalyst this time is the Iran conflict and recent Bank of England commentary, which have pushed the UK 10-year gilt yield – the rate at which the government borrows over a decade, which heavily influences mortgage pricing – to its highest level since 2008.
So far, however, mortgage products have seen only limited repricing, with five-year fixed rates still available at around 4.3% on comparison websites, suggesting the damage to affordability has been contained.
Jefferies argues the share price falls represent a buying opportunity and names Persimmon PLC (LSE:PSN), the FTSE 100 housebuilder, as its top pick.
The bank rates Bellway PLC (LSE:BWY), Berkeley Group Holdings PLC (LSE:BKG), Crest Nicholson PLC (LSE:CRST), Persimmon and Taylor Wimpey PLC (LSE:TW.) as 'buys', while holding a more cautious stance on Barratt Redrow PLC (LSE:BTRW) and Vistry Group PLC (LSE:VTY).