Lloyds Investors Signal U.K. Will Avoid Housing BubbleGavin Finch
Lloyds Banking Group Plc investors are betting that U.K. house prices will continue to rise across the country as the economy recovers.
The Treasury yesterday sold 3.2 billion pounds ($5.1 billion) of shares in Lloyds, Britain’s biggest mortgage lender, leaving the government with a profit of 61 million pounds. The sale was about three times oversubscribed, according to a person with knowledge of the sale who asked not to be identified because the information hasn’t been disclosed.
“A play on Lloyds is a play on U.K. house-price inflation and particularly on the housing market pickup rolling out nationally,” said Colin McLean, who oversees about 600 million pounds as managing director at SVM Asset Management Ltd. in Edinburgh. McLean said he bought Lloyds shares at the sale.
Lloyds has been buoyed by the country’s economic recovery and reviving property demand. U.K. house-price inflation accelerated to 3.3 percent in July from 3.1 percent in June, with London prices jumping 9.7 percent, data showed today.
The stake sale, the first since a 20 billion-pound bailout in 2008, came amid rising concern that the government’s Help-to-Buy program introduced earlier this year to award people with minimal savings with interest-free loans for the purchase of newly built homes, could spark a price bubble.
Barclays Plc Chief Executive Officer Antony Jenkins said Sept. 10 “there is the risk of a property-driven boom.”
“The regulators are on it and don’t intend to let it happen, but these things can be difficult to control,” said Jenkins, who oversees Britain’s second-largest bank by assets.
U.K. Business Secretary Vince Cable has called on the government to review a second part of Help to Buy, giving banks guarantees on mortgages for purchasers of both new and existing homes from January. The policy will allow people to buy a house with a deposit of as little as 5 percent of the property value.
Cable’s comments follow similar warnings from the International Monetary Fund and former Bank of England Governor Mervyn King about the risks associated with the program. Chancellor of the Exchequer George Osborne earlier this month called it “sensible” and necessary to help the market.
Adding to signs of recovery, the unemployment rate fell in the three months through July and jobless claims dropped more than economists forecast in August. The economy grew at the fastest rate in more than three years in the three months through August, according to an estimate from the National Institute of Economic and Social Research.
Lloyds shares have risen about 57 percent this year, making them the best performer among the U.K’s five biggest lenders. Barclays has increased about 13 percent.
“It was the right time to make the first move,” Danny Alexander, chief secretary to the Treasury, said in an interview today. “It’s a sign of the fact that our economy is heading in the right direction.”
The transaction will reduce the government’s stake in Lloyds to 32.7 percent from 38.7 percent. It still owns 81 percent of Edinburgh-based Royal Bank of Scotland Group Plc.
The biggest block of Lloyds buyers were U.K. based, with an overall majority coming from Britain and the U.S., said a person with knowledge of the sale who asked not to be identified because the information hasn’t been disclosed.
“The sale demonstrates global investors’ increasing interest in the U.K. domestic economy,” said Steve Davies, a London-based co-manager of Jupiter Asset Management Ltd’s U.K. growth fund with about 900 million pounds in assets under management. “Lloyds looks attractive at current prices and it remains the largest single holding” in the U.K. growth fund.