Is it wise to purchase UK home builders at this time?

Is it time to purchase UK homebuilder stocks now that Labour has promised major planning reforms to spur growth?

Housebuilder stocks in the UK have had a rough time, but is this the right time to buy?

Because UK housebuilder stocks are so vulnerable to inflation and interest rate increases, investors may be hesitant to place their money in them when making investment decisions for 2025.

It is undeniable that 2025 has begun unfavorably for UK home builders. During the first quarter of this year, the FTSE 350 Construction and Building Materials index dropped 7 points.

Leading these declines have been some of the largest homebuilder stocks.

Shares of Persimmon (LON:PSN) dropped 0.1 percent in the year ending April 1st, while shares of Barratt Redrow (LON:BTRW), the biggest homebuilder in the UK, dropped 30.8 percent during the same time frame. The share price of Taylor Wimpeys (LON:TW) has decreased by 11.3 percent over the same period.

Housebuilder stocks have been affected by concerns about the effects of incoming President Donald Trump's tariff agenda.

But there are some advantages. For starters, home values are increasing.

According to the Nationwide House Price Index, "UK house prices rose nearly 4% from last year," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. "However, growth slowed month-to-month, and there may be softness ahead as buyers accelerated purchases to avoid anticipated tax hikes."

In addition, it appears that the Labour government will carry out its plans to stimulate the homebuilding industry as part of its expansion agenda.

Why is this the ideal time to purchase UK home builders?

A major component of the new Labour government's summer campaign pitch to the British public was the promise to build 1.5 million homes before the next general election.

Rachel Reeves, the chancellor, pledged last week during her Spring Statement that 11.3 million new homes would be constructed over the following five years.

Reeves stated that this will bring the government "close to fulfilling our pledge to construct 1.5 million homes before the end of this administration."

Planning rule reforms, according to the OBR, could increase the UK economy by 0.4 percent of GDP.

This could lead to a revitalization of the struggling homebuilding sector.

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

With a growing outlet base and positive price momentum, Persimmon in particular is "well placed to exploit the market recovery" in housebuilding, according to Peel Hunt analysts Sam Cullen and Clyde Lewis. Cullen and Lewis reaffirmed their Buy rating on March 14 and raised their price target for Persimmon to 1,350p, which at the time indicated a 13.1 percent upside.

Given the synergies it anticipates from the successful merger of Barratt Developments and Redrow last year, Lewis and Cullen listed Barratt Redrow as one of 20 materially undervalued companies earlier this year.

Lewis and Cullen wrote, "The Redrow brand introduces a larger, more costly product to the range, and allows the group to tackle bigger sites more effectively, with three brands instead of two."

"Over the course of three years, the group also anticipates generating at least 90 million synergies, of which 34 million will come from procurement savings, 33 million from the rationalization of divisional structures, and 23 million from the reduction of central and support functions.

Which housebuilding stocks in the UK are at risk?

However, given the unpredictability of the macroenvironment, there are risks for UK homebuilders this year.

Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, explains that "government policy and mortgage rates have a significant impact on housebuilders' fortunes." The rate of rate cuts this year is unlikely due to the uncertain macroeconomic outlook and the fact that inflation has surpassed the Bank of England's 2 percent target.

Stocks of some home builders are underperforming. Last week, Vistry (LON:VTY) stopped paying dividends following a 35% decline in pre-tax profits in 2024.

Chiekrie claims that "2024 was a year for Vistry investors to forget." "It appears that Vistry is growing anxious as a result of declining profits and rising debt levels, and this year's final dividend has been suspended in an effort to strengthen the balance sheet.

"As partner-funded transactions have slowed, 2025 hasn't started off well either, with sales rates down sharply year-to-date.

According to AJ Bell investment analyst Dan Coatsworth, the return of inflation in building costs and short-term economic uncertainty exacerbate the challenges facing housebuilder stocks.