UBS remains positive on housebuilders, downplays "mild" cooling measures

UBS has said that the positive fundamentals of the UK housebuilding sector remain unchanged despite recent concerns about how policy changes may affect companies in the industry.The Financial Policy Committee (FPC) on Thursday recommended a cap on loan-to-income (LTI) ratios, suggesting that lenders do not give out more than 15% of mortgages at or greater than 4.5 times household income. It also said that so-called "affordability tests" on borrowers should be stricter.UBS said, in response to the recent sell-off among UK housing stocks, that the FPC's recommendations were "sensible but [a] relatively mild initial step to curb potential future excesses in the housing market".It said that while a "policy over-reaction" is undoubtedly the biggest risk to the sector, this risk has already been largely priced into the market and that future intervention will be "gradual and measured"."The implementation of macro prudential tools to cool a potentially overheating UK housing market has been well flagged and we had expected this from early on in 2014, so yesterday's FPC announcement does not surprise us in this context."UBS economists now expect the Bank Rate to rise by 25 basis points in November this year, compared with a previous forecast of 2015. This tightening, it said, "can be absorbed".The bank still believes that an economic improvement combined with the historical low cost of mortgage financing should support demand, while limited competition for land will allow for above-normal returns to be achieved. Also, the government's drive to boost new build construction should also help housebuilders."Our top picks are Berkeley Group and Taylor Wimpey, but we see upside potential to all shares in the sector."UBS also has 'buy' ratings on the following stocks: Barratt Developments, Bellway, Bovis Homes, Persimmon and Redrow.BC