Natwest has the most to gain from an early hike in Bank Rate, BofA says

NatWest stands to gain the most from stronger activity in the UK housing market, analysts at Bank of America said.

In a research note sent to clients, they said house price growth remained "some way" below previous weeks, but that if sustained could accelerate a tightening in policy rates by the Bank of England.

Demand for housing was picking up again, credit criteria were being loosened and mortgage pricing was coming down, the analysts added.

Their forecasts called for consumers to unleash a fifth of their Covid savings and strong house price inflation could add to that strength.

If Bank Rate were 25 basis points higher by the end of 2022, that would boost their estimates for NatWest's 2023 earnings by 9%, 5% in the case of Lloyds, 4% at Virgin Money UK and 2% at Barclays.

"Stronger lending volumes would be a further positive for NatWest, which targets above market mortgage growth," they pointed out.

"In our view, house price gains will slow with wider economic growth from late 2021. But for the next few months very strong growth and inflation prints will dominate.

"The BoE will struggle to resist hawkish rhetoric, in our view, and a 2Q 2022 Bank Rate hike (earlier than the market prices) looks like a plausible risk."

BofA was at a 'buy' on shares of NatWest with a target price of 245.0p.