Jefferies has lifted its price target on Bellway and kept Persimmon as its top pick in the UK housebuilding sector.
It argues the government's forthcoming 'Your First Home' equity loan scheme could prove a meaningful demand catalyst if the budget detail is sufficiently generous.
The broker raised its target on Bellway, the Newcastle-based housebuilder, to 2,527 pence from 2,380 pence while maintaining a buy rating, though it cut earnings estimates by up to 14% over the next two years to reflect a more cautious volume outlook.
The sector as a whole is trading at 66% of 2027 net tangible asset value, which Jefferies said reflects investor scepticism that the new scheme will do more than offset the demand headwind from higher mortgage rates rather than drive genuine volume growth.
The government is expected to provide more detail on 'Your First Home' in the budget on 28 October, with the scheme understood to involve a 20% equity loan for first-time buyers of new-build homes in England, requiring a minimum 2.5% deposit.
Key details still to be confirmed include the annual budget for the scheme, thought to be between £1 billion and £2 billion, the income cap for eligible buyers, the length of the interest-free period on the loan, and the developer fee, which could be up to 5%.
Jefferies said that on a sufficiently wide budget, the scheme should create an attractive proposition for first-time buyers even at current mortgage rates, but that actual customer uptake data may be needed before investors gain conviction in the volume upside.
The broker identifies Persimmon as best placed to benefit, citing its strong strategic land bank, its ability to open sites quickly, and margins that are comfortably ahead of peers, giving it the greatest operational leverage to any recovery in volumes.
Persimmon's price target stands at 1,590 pence, implying upside of around 29% from the current share price, with Jefferies forecasting profit before tax rising from £474 million in the current financial year to £613 million by 2028.
Barratt Redrow remains on hold at a target of 323 pence, with Jefferies citing the complexity of integrating the two merged businesses and the sector-high building safety provisions as factors weighing on the rating despite an attractive valuation.
The broker does not anticipate any change to stamp duty in the budget, nor any cancellation of the Building Safety Levy or changes to Future Homes Standard regulations.
