U.K. homebuilders rose after Bank of England Governor Mark Carney introduced measures to cool the housing market that were less stringent than some investors had expected.
Persimmon Plc, the largest company by market value on the Bloomberg EMEA Homebuilders Index, was up 5 percent to 1,259 pence at the 4:30 p.m. close of trading in London. Redrow Plc was the biggest gainer in the index with a 6.5 percent advance to 267.6 pence, while Taylor Wimpey Plc jumped 5.2 percent to 109.9 pence.
Homebuilders erased the past month’s losses after Carney said at a press conference that the government would act to limit riskier mortgages and prevent an unsustainable buildup of debt by consumers. Today’s announcement is the biggest recent effort by a major central bank to actively tackle the threat of an asset bubble and avoid a repeat of the credit crisis.
“Homebuilders sold off quite heavily in advance of this, so there was a lot of negative news priced in,” said Colin Sheridan, an analyst at J&E Davy Holdings Ltd. in Dublin. Measures by regulators won’t significantly limit mortgage lending in the short term, he said. “They’re more focused on reckless lending in the future than anything going on at the moment.”
Bloomberg’s EMEA Homebuilder Index rose 4.4 percent, the biggest gain since Aug. 16, 2013, when it added 5.9 percent.
The BOE’s action was prompted by booming demand for residential real estate and an increase in high loan-to-income mortgages, with Carney saying debt levels had put the economy in a vulnerable position.
In the first of two recommendations announced today, the U.K. government said lenders must limit the proportion of mortgages at 4.5 times income to no more than 15 percent of their home loans. It also said banks must decline mortgages to borrowers who fail a new repayment test.
In a separate announcement, Chancellor of the Exchequer George Osborne said that mortgages taken out under Help to Buy, a government program that guarantees loans to homebuyers with small down payments, will be capped at 4.5 times income.
The move to limit mortgages are “tentative measures” that won’t significantly affect the housing market, analysts at ING Groep NV said in a note.