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Housing shares rise as mortgage curbs seen as lenient

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Bank will have limits to the amount they can lend in mortgages after the Bank of England introduced new curbs to cool the housing market.

From mid-October, a cap will limit the number of home loans issued at or above a multiple of 4.5 times a borrower’s salary to 15% of the total.

"The measure is designed to capture risks associated with excessive household indebtedness," the Bank said.

Lenders will also have to test a customer’s ability to pay on the basis that interest rates are 3% higher than at the time a loan is taking out.

The measures, spelt out in the latest quarterly Financial Stability Report, will also apply to house buyers using the government’s Help to Buy scheme.

Bank governor Mark Carney said the Bank’s concern was to control the level of debt, not the housing market or house prices.

Markets liked the measures, which some feared could have been far more stringent, and shares in housebuilders rose strongly on the back of the announcement.

London and south east specialist Berkeley Group (LON:BKG) jumped 4% to 2,387p, Persimmon (LON:PSN) rose by 6% and Barratt Developments ( LON:BDEV) 5.6%. Lloyds Banking (LON:LLOY) shares also picked up.

The Council of Mortgage Lenders said London would be the most affected, with a fifth of loans currently at a loan-to-income ratio (LTI) ratio of 4.5 or above, whereas the figure is less than 10% in the rest of the country.

Banks that lend more than £100mln annually a year are covered by the new ruies, though the Bank of England said that the immediate impact of the cap would be modest as most lenders currently lend within a 4.5 times LTI level.

Quick facts: Berkeley Group

Price: 4250 GBX

LSE:BKG
Market: LSE
Market Cap: £5.33 billion
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