Barclays has reiterated its bullish stance on parts of the UK housebuilding sector, keeping overweight ratings on Bellway and Barratt Redrow while moving Vistry Group up to equal weight, after presenting a scenario in which a revived, housebuilder-funded equity loan could materially improve sector earnings by 2027.
The brokerage noted the sector finished 2025 broadly flat, with analysts trimming earnings by low double digits after demand proved weaker than expected in the second half of the year. Barclays flagged sustained build cost inflation running at 2% to 3% and an absence of house price growth as key headwinds to results across listed builders.
On a like-for-like basis, sales rates in 2025 remained around 20% below 2019 levels even after factoring in increased bulk sales activity. Housing completions have been running at roughly 150,000 over the last 12 months, which Barclays pointed out is roughly half the pace required to meet the government target of 1.5 million homes for this parliament.
Against this backdrop, Barclays argued that the market is underpricing the probability of a new housebuilder-funded equity loan scheme. In a targeted design where housebuilders levy a fee each time a buyer uses the facility, the brokerage estimated sector EBIT could rise by approximately 22% in 2027, without assuming any improvement in the underlying market conditions.
The note set out the mechanics of the proposed arrangement. Under Barclays' illustrative example, a 20% equity loan on a £350,000 home would reduce a buyer's mortgage requirement from 95% loan-to-value to 75% loan-to-value. That change would lower monthly mortgage payments from £1,792 to £1,342 and take the mortgage payment as a share of take-home pay from 40% to 30%, aligning payments with the UK's long-run average, according to Barclays' analysis.
Barclays also observed that first-time buyer mortgage payments currently sit at 32% of take-home pay, close to the long-run average of 30% cited in the model.
On costs, the brokerage estimated a gross margin benefit to housebuilders of funding the equity loan of around 200 basis points per unit. Barclays contrasted this with the current incentive cost, which it estimated at roughly 6% of revenue, noting that any levy charged for using a Help to Buy-style loan would likely be meaningfully lower than current sales incentive expenditure.
Barclays modelled a base scenario that assumed 20% of all private sales used the proposed scheme, producing a 5% uplift in like-for-like volumes; a 1% reduction in incentives on the remaining 80% of sales; and gross margin accretion of roughly 160 basis points from a 2027 base margin of 18%.
In a more optimistic, blue-sky scenario which returned sales rates and incentive levels to those seen in 2019, Barclays estimated potential sector earnings upside of about 85%.
The broker flagged the UK government's Spring Statement on 3 March as a potential catalyst for policy movement.
On company-specific positioning, Barclays maintained Bellway as an overweight pick, noting the stock priced at 2,848p and carrying a 3,390p target that implies roughly 19% upside. Barratt Redrow also remained an overweight selection, trading at 378p with a 490p target implying around 30% potential upside.
Barclays highlighted that Barratt Redrow trades at 0.8x price-to-tangible net asset value, a 16% discount to the sector, and the broker expects returns to approach the sector average by 2028.
Berkeley Group stayed on the overweight list with a 5,230p target. The brokerage suggested Berkeley could be a larger beneficiary from policy changes than historically thought due to its shorter order book and a lower average selling price, which Barclays forecasts at £575,210 for fiscal 2026.
Persimmon was assigned an equal weight rating at 1,514p and described as relatively fully valued in the broker's view, trading at 1.3x adjusted EV/IC, roughly a 30% premium to the sector. Barclays added that Persimmon's average selling price is now only 16% below the sector average, compared with a 22% gap during 2014 to 2019, implying it is less differentiated as a first-time buyer play than previously assumed.
Taylor Wimpey remained underweight with a 111p target. Barclays' 2026 profit before tax estimate for Taylor Wimpey is £356 million, which sits 8% below Bloomberg consensus and at the bottom of the consensus range.
Vistry was upgraded from underweight to equal weight, with a revised target of 715p up from 507p. The broker said improved social housing funding resulting from the government's June 2025 Spending Review and the November 2025 Autumn Budget should support affordable housebuilding activity in the near term. Barclays also warned of balance sheet constraints at Vistry, noting average daily net debt for 2025 ran above £700 million versus total facilities of £1.1 billion.
Overall, Barclays presented a scenario in which targeted policy support financed by housebuilders themselves could materially alter demand dynamics and improve margins for listed builders, while cautioning that 2025 was a year of muted underlying market performance and persistent input cost pressures.
Investors and market participants should weigh the potential policy-driven upside outlined by Barclays against the ongoing headwinds of reduced sales rates, build cost inflation, and varied balance sheet strength across the listed housebuilders.