UK homebuilders' demand recovery in focus as affordability concerns return

By Aby Jose Koilparambil and Yadarisa Shabong

(Reuters) - FTSE 100 homebuilders are expected to offer insights into the pace of recovery in new home sales when they report annual performance updates this week, with analysts remaining confident about 2025 even as affordability concerns resurface.

High mortgage rates and a prolonged cost-of-living crisis had soured demand for most of last year, before two Bank of England interest-rate cuts helped drive a rebound in market confidence in the final quarter.

Markets have now pared back earlier expectations for 2025 rate cuts from the central bank, stirring up worries around affordability again.

Still, analysts expect Taylor Wimpey and Vistry to post an about 25% surge in profit for this year, and a 20% jump in earnings for Persimmon, according to estimates compiled by LSEG.

Analysts said the positive outlook underscored pent-up demand, the modest rise in affordability last year, and limited risks from build-cost inflation.

The three companies do not break out forecast numbers in their annual performance updates, but analysts watch out for any commentary on the housing market's outlook.

Planning reforms and mandatory new-home delivery targets set out by the Labour government last year could boost housing supply in the under-supplied sector.

Analysts also predict buyers will rush to buy new homes in the first quarter of 2025 as the threshold for paying stamp duty on home purchases will be lowered starting April 1.

Daniel Austin, CEO and co-founder at property lender ASK Partners, said buyers looking to capitalise on the stamp duty relief will be ready to move, while those still saving for their deposit would reassess their situation and recalculate affordability.

MORTGAGE COSTS

Financial markets are pricing in just two quarter-point rate cuts by the Bank of England this year, compared with four expected by economists polled by Reuters last month.

Mortgage rates could go up due to the rise in UK swap rates over the last few weeks, said Investec analyst Aynsley Lammin.

"It is still very early in the year, but assuming that swap rates stay elevated, it probably feeds through to high mortgage rates," said Lammin.

Shares in Persimmon and Taylor Wimpey declined about 14% and 17%, respectively, in 2024, while Vistry slumped 38%.

(Reporting by Aby Jose Koilparambil and Yadarisa Shabong in Bengaluru; Editing by Devika Syamnath)