Is now a good time to buy UK housebuilders?

UK housebuilder stocks have endured a difficult period, but could now be the right time to buy?

Investors deciding where to invest for 2025 might be reluctant to put their money into UK housebuilder stocks, especially given how susceptible they could be should inflation and interest rates rise.

There is no hiding from the fact that 2025 has started inauspiciously for UK housebuilders. The FTSE 350 Construction and Building Materials index fell 7.4% over the first quarter of the year.

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Some of the biggest housebuilder stocks have led these declines.

Persimmon (LON:PSN) shares fell 0.1% in the year to 1 April, while the UK’s largest housebuilder Barratt Redrow (LON:BTRW) fell 3.8% over the same time period. Taylor Wimpey’s (LON:TW) share price is down 11.3% in the same timeframe.

Fears over the impact of incoming president Donald Trump’s tariff agenda have weighed on housebuilder stocks.

However, there are some positives. For one thing, house prices are rising.

“UK house prices rose nearly 4% from last year, according to the Nationwide House Price Index,” says Matt Britzman, senior equity analyst, Hargreaves Lansdown, “though growth paused month-to-month and there could be softness to come as buyers accelerated purchases to sidestep expected tax hikes.”

Additionally, the Labour government looks set to follow through on plans to kickstart the housebuilding sector, as part of its drive for growth.

Why is now a good time to buy UK housebuilders?

Housebuilding formed a key pillar of the new Labour government’s pitch to the British electorate during the summer campaign, promising to build 1.5 million homes before the next general election.

During her Spring Statement last week, chancellor Rachel Reeves promised 1.3 million new homes will be built over the next five years.

That will take the government “to within touching distance of our promise to build one and a half million homes during the course of this government”, said Reeves.

The OBR has forecast that reforms to planning rules could boost the UK economy by 0.4% of GDP.

This could spark a turnaround for the beleaguered housebuilding industry.

“UK housebuilders are building momentum, with depressed valuations offering some good entry points for quality names in the sector, and attractive fundamentals on a long-term view,” says Britzman.

Peel Hunt analysts Sam Cullen and Clyde Lewis feel that Persimmon in particular is “well placed to exploit the market recovery” in housebuilding, “with a growing outlet base and positive price momentum”. On 14 March, Cullen and Lewis increased their price target for Persimmon to 1,350p (implying 13.1% upside at the time) and reiterated a Buy rating.

Earlier this year, Lewis and Cullen included Barratt Redrow in a list of 20 materially undervalued companies, in light of the synergies it envisages from its successful merger between Barratt Developments and Redrow last year.

“The Redrow brand adds a bigger, more expensive product to the range, and allows the group to tackle bigger sites more effectively, with three brands instead of two,” wrote Lewis and Cullen.

“In addition the group expects to deliver at least £90 million of synergies over three years, with £34 million from procurement savings, £33 million from divisional structure rationalisation, and £23 million from central/support function reductions.”

What are the risks for UK housebuilding stocks?

There are risks for UK housebuilders this year, though, especially given how unpredictable the macro environment is.

“Housebuilders’ fortunes are heavily influenced by mortgage rates and government policy,” explains Aarin Chiekrie, equity analyst, Hargreaves Lansdown. Inflation has risen above the Bank of England’s 2% target, and the uncertain macroeconomic picture reduces the likelihood of rate cuts continuing at pace this year.

Certain housebuilder stocks are struggling. Vistry (LON:VTY) halted its dividend last week after a 35% drop in pre-tax profits during 2024.

“2024 was a year for Vistry investors to forget,” says Chiekrie. “With profits falling and debt levels rising, it looks like Vistry’s getting nervous and in a bid to shore up the balance sheet, this year’s final dividend has been halted.

“2025 hasn’t got off to the best of starts either, with sales rates down significantly year-to-date as partner-funded transactions have pulled back.”

Near-term economic uncertainty and the return of inflation in building costs add to the headwinds facing housebuilder stocks, according to Dan Coatsworth, investment analyst at AJ Bell.