By Ed Ballard
LONDON--Shares in U.K. house builders dropped sharply Friday
after the governor of the Bank of England signaled that interest
rates could rise soon and George Osborne said he would give the
bank powers to restrict mortgage lending.
Addressing bankers and business leaders Thursday, Mark Carney
said real estate presented "the greatest risk to the domestic
economy" and warned that a rate rise "could happen sooner than
markets currently expect."
Mr. Osborne, the Chancellor of the Exchequer, pledged to let the
Bank of England limit the size of mortgage a potential buyer can
borrow relative to their incomes and the value of the property.
Shares in Persimmon PLC (PSN.LN), the U.K.'s biggest builder by
market value, were down 6.53% at 1317, while Barratt Developments
PLC (BDEV.LN) was down 6.71%, the most in the blue-chip FTSE 100
index. Taylor Wimpey PLC (TW.LN), Bellway PLC (BWY.LN), Telford
Homes PLC (TEF.LN) and Berkeley Group Holdings PLC (BKG.LN) all
lost more than 5%.
The threat of rate increases was unexpected in light of data
showing the government's Mortgage Market Review--which requires
banks to apply stricter affordability tests before lending to home
buyers--could be cooling the U.K.'s housing market, wrote Gerard
Lane, an analyst at Shore Capital.
Data released by the Royal Institute of Chartered Surveyors
Thursday showed that enquiries from new buyers eased in May, while
surveyors' price expectations fell--even as data from Halifax
published last week showed the price of the average home rose 8.7%
in May from a year earlier.
"To us this indicates the potential of non-interest rate policy
in effecting a slowdown in housing related activity, which in our
view could be used to dampen the housing market without impacting
the likes of business investment spending in the way that interest
rates would," Mr. Lane wrote. "Risks of an interest rate rise would
undermine further the likes of the general retail sector and the
house builders."
Write to Ed Ballard at ed.ballard@wsj.com