Persimmon PLC (LSE:PSN) and Barratt Redrow PLC (LSE:BTRW) have emerged as UBS’s preferred UK housebuilders, with the investment bank arguing that investors should remain selective as elevated mortgage rates and construction costs delay a broader recovery.
UBS initiated coverage of Persimmon with a ‘buy’ rating and £13.25 price target and reiterated its ‘buy’ recommendation on Barratt Redrow with a £3.70 target.
The broker believes the pair offer the best combination of valuation support, operational recovery potential and cash generation, while remaining cautious on the wider sector.
UK housebuilders have fallen around 22% year to date, according to UBS, as affordability pressures, higher mortgage rates and renewed build-cost inflation have weighed on demand, house prices and profitability.
Sector valuations are now approaching historical trough levels, with housebuilders excluding Vistry trading at around 0.74 times forecast 2027 tangible book value, compared with a long-term average of roughly 1.4 times.
Persimmon leads UBS rankings
Persimmon is UBS’s top sector pick, reflecting its exposure to more affordable homes, first-time buyers and northern UK markets, together with recent planning successes, vertical integration and build efficiencies.
UBS forecasts Persimmon’s return on tangible equity reaching 10.8% by 2030, compared with around 9.1% currently implied by its valuation. Its £13.25 target represents potential upside of about 22% from the reference price used in the report.
Barratt Redrow offers about 24% potential upside to UBS’s target. The broker highlighted post-merger opportunities to expand outlets and improve margins, with medium-term volumes potentially increasing 29% from FY2026 estimates. Shareholder returns and the enlarged group’s land position also provide valuation support.
Recovery likely to take time
UBS expects the wider sector’s operating margins to trough in 2027 before gradually recovering as affordability improves and cost pressures ease.
The broker forecasts sector volumes falling around 2% in 2027 before returning to annual growth of 4%-5% from 2028, with operating margins recovering towards 12%-13% by 2029.
Berkeley Group Holdings PLC (LSE:BKG) and Vistry Group PLC (LSE:VTY) were rated ‘neutral’, while Taylor Wimpey PLC (LSE:TW.) and Bellway PLC (LSE:BWY) received ‘sell’ recommendations. UBS sees execution and margin risks at Taylor Wimpey, while Bellway’s valuation appears relatively stretched against a sluggish housing backdrop.
A broader re-rating may therefore depend on clearer evidence of falling mortgage rates, easing build-cost inflation and an improvement in buyer affordability.
