Lloyds Rises as BOE Housing Measures Less Stringent Than FearedKeith Campbell
Lloyds Banking Group Plc, the U.K.’s biggest mortgage lender, rose in London trading after Bank of England Governor Mark Carney’s measures to cool the housing market were less sweeping than some analysts expected.
Carney said today the housing market poses the biggest risk to the British economy and introduced plans to limit riskier mortgages. The Financial Policy Committee said that lenders must cap the proportion of mortgages at 4.5 times income to no more than 15 percent of their new home loans, and said banks must decline mortgages to borrowers who fail a new repayment test.
“The initial market reaction suggests that this was not as stringent as it might have been,” Alan Clarke, an economist at Scotiabank, said in London in e-mailed comments. “They had to find the middle ground between being toothless and completely killing the market.”
The shares rose as much as 2.7 percent, erasing a decline of as much as 0.9 percent, and were up 2.2 percent to 76.13 pence as of 1:03 p.m. in London. Lloyds, which is 25 percent owned by the government, has gained about 22 percent over the past 12 months, helped as a housing boom sent London prices to records. Shares of homebuilders such as Persimmon Plc also surged today.
James Knightley, a senior economist at ING Bank NV in London, said the central bank’s directive to lenders wouldn’t significantly slow the housing market as just 10 percent of lenders’ mortgages exceed the 4.5 times income ratio, less than the 15 percent cap.
“Today’s actions will not impact cash buyers and foreign buyers who do not need a U.K. mortgage,” Knightley said in an e-mailed note. “None of this does anything to solve the underlying problem of a lack of supply in London and the South East, not that the BOE can do anything about that.”
Lloyds said on May 20 that it would impose limits on lending to homebuyers to counteract rising house prices in London, capping lending at four times salary on loans of more than 500,000 pounds ($852,000). It was the first of Britain’s biggest mortgage lenders to announce measures to cool house-price gains and protect itself from potential future losses.
Separately, Chancellor of the Exchequer George Osborne announced today that mortgages taken out under Help to Buy, a government program guaranteeing loans to people with small down payments, will be capped at 4.5 times income.