UK homebuilders Barratt, Vistry set to underline recovery path

UK builders eye recovery: Top UK homebuilders Vistry and Barratt will likely strike a cautiously optimistic tone on demand recovery when they report earnings this week as interest rates ease and government policy reforms take shape.

The homebuilders are expected to benefit from increased affordability due to declining mortgage rates and volume growth from the new Labour government's push to deliver 1.5 million more homes before the next election through an overhaul of the planning system.

Persimmon and Taylor Wimpey recently forecast annual housebuilding numbers towards the upper end of their guidance range, while Bellway BWY.L noted improving buyer confidence following a drop in mortgage rates.

"There appears to be a more tangible recovery evidence at the start of the second half of the year, and there is some expectation that this is a recovering trend," said Colin Sheridan, equity analyst at Davy.

Barratt is set to report on Wednesday, with analysts expecting a 60 per cent drop in adjusted pre-tax profit to £365 million ($479.5 million) for the year ended June 30, according to LSEG data based on 15 analysts.

Investors in the FTSE 100 company will be watching for any upward revision to the company's 2025 homebuilding targets, which were flagged for a potential 7 per cent drop in July.

UBS analyst Marcus Cole said an earnings recovery cycle is approaching for UK homebuilders.

Vistry, which reports on Thursday, expects a 7 per cent jump in half-year profit, buoyed by resilient demand for its affordable homes from housing associations and the rental segment, making it an outlier in the sector in the past few years.

However, Vistry's efforts to boost its balance sheet health will be key as the group plans to return 1 billion pounds to shareholders over the next three years, said Hargreaves analyst Aarin Chiekrie.

Despite the positive outlook, analysts caution that homebuilders may retain an element of caution due to mortgage rates remaining above levels seen in the past two to three years.

"A further easing of mortgage rates will be needed if activity is to pick up significantly," said Hargreaves analyst Susannah Streeter.

The market will also watch for high-end builder Berkeley's trading update on Friday.