Jefferies, the investment bank, says UK housebuilders trade at 66% of 2027 net tangible asset value (NTAV), the value of their assets excluding intangibles, ahead of the Budget on 28 October.
The bank argues that the sector’s valuation assumes the government’s “Your First Home” scheme will offset weaker demand caused by higher mortgage rates, rather than increase sales volumes in the medium term.
The scheme is planned as a 20% equity loan for first-time buyers of new-build homes in England, who must provide a minimum 2.5% deposit, with the Budget expected to clarify income and property price caps, annual funding and the launch timetable.
Jefferies does not expect changes to stamp duty or the 4% Residential Property Developers Tax, nor does it expect the Building Safety Levy to be scrapped or the Future Homes Standard to change.
The bank says changes in interest rate expectations will be as important as housing policy, with the one-year swap rate of 4.5% indicating that markets are pricing in a 100-basis-point rate rise by the end of 2027.
Persimmon PLC (LSE:PSN) remains Jefferies’ top pick, with a ‘buy’ rating and a price target of 1,590p, implying 29.4% upside from 1,229p.
The bank says housebuilders’ ability to capture any increase in sales volumes will depend on opening enough outlets selling homes eligible for the scheme, supported by a strong strategic land bank.
Jefferies also rates Bellway PLC (LSE:BWY), Berkeley Group Holdings PLC (LSE:BKG) and Taylor Wimpey PLC (LSE:TW.) as ‘buy’, with price targets of 2,527p, 4,301p and 101p respectively, while rating Barratt Redrow ‘hold’ with a target of 323p.
Jefferies raised its Bellway price target to 2,527p from 2,380p, while cutting its 2027 pre-tax profit forecast by 15.1% to £223 million and reducing its completions forecast by 6.7% to 9,210.
Its 2027 pre-tax profit forecasts are 12.2% above consensus for Persimmon and 6.7% above for Taylor Wimpey, but 10.1% below consensus for Barratt Redrow.