(Bloomberg) -- Shares of UK homebuilders extended their resurgence as the latest data on inflation in Britain fueled further hopes of declining mortgage rates and increased demand for new houses.
The Bloomberg UK Homebuilder Index rose as much as 2.3% Wednesday and headed for the highest close since March 2022, with gains for stocks including Persimmon Plc and Barratt Developments Plc. The move came as statistics showed UK prices increased by less than economists expected last month, prompting traders to bring forward bets on the pace of interest rate cuts by the Bank of England.
“Falling mortgage rates will usher in a robust autumn selling season once the summer holidays draw to a close,” Anthony Codling, who follows housing stocks for RBC, wrote in a note to clients after the data.
The UK homebuilder index is now up 11% for the year, outpacing a 6.8% increase for the FTSE 100 Index.
The sector gauge has recovered about half of the losses that followed a surge in mortgage rates from 2022, when central banks looked to tame inflation by boosting borrowing costs. The group is now priced at 1.2 times book value, having traded at below book for much of the past few years.
Wednesday’s cooler-than-expected inflation spurred a further decline in the 5-year sterling overnight indexed swap rate — a benchmark used by banks to price mortgages in the country.
“Recent moves downwards in the swap rate imply a further reduction in mortgage rates to come, which we see supporting the outlook for approvals and transactions in the second half and beyond,” JPMorgan Chase & Co. analysts including Zaim Beekawa wrote earlier.
JPMorgan’s mortgage tracker already shows a 20-basis-point decline in mortgage rates, on average, across the last three months, the analysts added, keeping overweight ratings on stocks including Persimmon, Barratt and Taylor Wimpey Plc.
--With assistance from Henry Ren.
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