UK housing stocks slump as HSBC warns of impending downturn

(Reuters) -Shares in British housebuilders' index tumbled to a near nine-year low on Friday after analysts at HSBC warned that the country is on the cusp of a housing downturn, as a steep climb in mortgage rates casts a cloud over demand.

The UK housing sector, a pandemic winner, is now showing signs of losing some momentum with surveyors reporting fewer new-buyer inquiries in recent months, while the number of mortgage approvals for house purchases has fallen below pre-pandemic levels.

HSBC's Building Materials team predicts a 20% slump in UK housing demand for a year from this autumn, the brokerage wrote in a note. Britain's housebuilders' index fell about 4% to its lowest since 2013.

The brokerage downgraded all UK housebuilders under its coverage to "hold" from "buy", except for high-end homebuilder Berkeley Group, whose rating was cut to "reduce" from "hold". Meanwhile, it kept its "buy" rating on Vistry.

The research action comes at a time when Britain is widely expected to enter a phase of recession at the end of the year in the face of surging inflation and rising interest rates.

Berkeley, Barratt, Persimmon and Taylor Wimpey led declines on the FTSE 100, falling between 2% and 5%.

The sector index has plunged about 44% this year with the initial declines coinciding with the government's move in early 2022 to ramp-up pressure on housebuilders to foot the bill for cladding removal before the market started pricing in the gloomy environment, particularly a rise in operational woes.

Red-hot house prices in the UK have helped homebuilders stave off cost pressures from supply chain disruptions and labour shortages, caused partly by Brexit and the coronavirus crisis, but key players including Barratt and Persimmon in recent months have highlighted the toughening situation.

(Reporting by Yadarisa Shabong and Aby Jose Koilparambil in Bengaluru; Editing by Shailesh Kuber)