U.K. Homebuilders Fall as BOE Rate Rise Edges Closer

U.K. homebuilders fell after Bank of England Governor Mark Carney said a rise in interest rates is edging closer.

The Bloomberg EMEA Homebuilders Index slumped as much as 2.5 percent, the biggest intraday day drop since July 8. Bovis Homes Group Plc, whose shares have risen by more than a quarter so far this year, led the declines at 3.7 percent.

The BOE has kept its benchmark interest rate at a record-low 0.5 percent since March 2009, making mortgages more affordable and sparking investment in real estate. The U.K.’s economic recovery is making an interest-rate increase more likely, Carney told lawmakers today, without being more specific.

“People think it’s going to be bad for homebuilders, but any increase will be small and the pace gradual,” said Anthony Codling, an analyst at Jefferies. “If we come off record-low levels, it’s not going to affect lots of people.”

U.K. home prices increased by an annual 5.7 percent through May, up from 5.5 percent through April, the Office for National Statistics said Tuesday. The house price index for London reached a record high in May and homes in the capital are now 40 percent more expensive than they were at the pre-financial crisis peak, the data show.

The index of the U.K.’s nine biggest publicly traded homebuilders has gained 32 percent since the start of the year as demand for homes stayed strong amid a supply shortage.

England needs about 245,000 new homes a year to keep up with growing demand, Bloomberg Intelligence reported, citing the National Housing Federation. About 115,000 properties were completed in each of the last five years on average.

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