The last couple of years have been bumpy for UK housebuilders due to higher interest rates. Earnings on Taylor Wimpey (LSE:TW.) shares, for instance, fell heavily in 2023 and 2024, as reduced buyer affordability struck newbuild home demand.
But with the Bank of England (BoE) firmly under way with a rate-reduction programme, could the FTSE 100 company now enjoy a period of strong and sustained growth? Let’s take a look.
The forecasts
| Year | Predicted earnings per share | Annual growth | Price-to-earnings (P/E) ratio |
|---|---|---|---|
| 2025 | 8.59p | 2% | 13.8 times |
| 2026 | 10.17p | 18% | 11.7 times |
| 2027 | 12.14p | 19% | 9.8 times |
As you can see, City analysts are expecting earnings to edge modestly higher this year. But boosted by lower BoE lending rates, an improving mortgage market and increased build rates, growth’s tipped to accelerate to double-digit percentages in the next two years.
Yet broker projections can often miss forecasts, either to the upside or the downside. And in the current uncertain economic landscape, estimates at cyclical shares like Taylor Wimpey have an extra layer of risk build in.
However, I’m optimistic that profits will rebound sharply for several reasons.
The bull case
As mentioned, the BoE’s tipped to keep slashing rates as inflation moderates and the British economy struggles for meaningful growth. Some analysts think they could even fall more than 1% over the next year, from 4.25% today (Goldman Sachs analysts have tipped rates to bottom out at 3% by February).
Homebuyers are also likely to be supported by the dogfight among the country’s mortgage providers. The number of sub-4% interest rates on fixed products is rising strongly, while rules on no-deposit mortgages are also loosening.
To capitalise on this fertile backdrop, Taylor Wimpey’s likely to ramp up production over the coming years, giving profits a further boost. The builder currently plans to erect 10,400-10,800 homes in 2025, up from 10,593 last year.
The bear case
However, there’s no guarantee the housebuilder is about to reach the sunlit uplands. Broader weakness in the UK economy could hamper earnings growth, even if interest rates fall, and especially if unemployment spikes.
There’s also uncertainty over the level of demand from first-time buyers after temporary stamp duty cuts ended last month.
It’s important for investors to bear these threats in mind. However, as a holder of Taylor Wimpey shares, I’m somewhat reassured by the underlying strength of the housing market despite these obstacles.
Latest data from Rightmove showed the average asking price for UK homes hit new record peaks of £379,517 in May. This was up 0.6% month-on-month, and came despite “a dip in new buyer demand following April’s stamp duty increase“.
The verdict
On balance, I’m optimistic Taylor Wimpey can hit the City’s bright profits estimates through to 2027. In fact, given rapid long-term growth in the UK population, I think gains here could impress well beyond the forecast period and it’s one worth considering.
