Deutsche cites 'interesting buying opportunity' in UK housebuilders

Analysts at Deutsche Bank recommended buying the UK housebuilders, in particular Barratt Developments, Bovis Homes and Taylor Wimpey, after saying a pull-back in the shares due to concerns about interest rates was "overdone". The broker countered these concerns, pointing to "easy affordability, significant lending aspirations from banks combined with a willingness to reduce their spreads further".With the stocks now trading at less than 20% premium to 2015 net tangible asset value per share, for a sector where return on capital employed is forecast to exceed 20% on a two-year view, with scope for significant upside potential to forecasts from house price inflation and a mid-high single digit dividend yield Deutsche sees this as an "interesting buying opportunity". Analysts provided three points why they think the impact of interest rate rises are over-estimated.Firstly, that visitor levels remain strong and that mortgage rates have continued to decline in the face of continued discussions over the past months of the likely base rate increases."With the BoE's Credit Conditions survey indicating a further narrowing of spread anticipated by the lenders through quarter two 2014 we believe this will help offset the impact of potential rises in base rate."Secondly, that monthly mortgage payments are at the lowest level for five years and that payments are currently cheaper than rental costs across much of the country, implying small rises in fixed rate mortgage costs can be absorbed. "Good affordability is currently especially true for the buyers of new build homes where the Help to Buy 1 mortgage products are providing three-year fixed deals costing just 2.5%." Finally, given the low level of lending to historical levels, the broker said it continued to believe "the availability of mortgages is a more important factor than the affordability". The recent Credit Conditions survey indicated banks expected an increase in mortgage lending in the second quarter driven by the banks market share objectives, with CML forecasting gross mortgage lending to increase 15% in 2014, with a further 6% in 2015.OH