Housing stocks gain as BoE unveils 'modest' measures to cool market

The Bank of England (BoE) announced a series of measures on Thursday to cool the housing market, which it claims is the biggest risk to the economic recovery.However, housing stocks rose strongly in London as investors breathed a sigh of relief in reaction to the proposals which "look - at least at first sight - less draconian than many observers have feared", according to Alastair Stewart at Westhouse Securities.The Financial Policy Committee (FPC) recommended a cap on loan-to-income (LTI) ratios, suggesting that lenders do not give out more than 15% of mortgages at or greater than 4.5 times household income.Separately, the Treasury announced that no new loans at or above an LTI of 4.5 will be available under the Help to Buy mortgage guarantee scheme.The FPC also said that so-called "affordability tests" on borrowers should be stricter.It said the decisions were made "with the intention of capturing macroprudential risks associated with excessive household indebtedness"."Lenders should continue to apply whatever criteria they feel are appropriate and commensurate with their risk appetite when taking individual lending decisions," it said.Martin Beck, the Senior Economic Advisor to the EY ITEM Club, said that the recommendations announced on Thursday were "fairly modest" and that the "direct effect [...] in cooling the housing market is likely to be limited"."With high loan-to-income mortgages currently accounting for only 10% of the total, there is still sizeable room for such lending to expand before the FPC's cap is reached," he said.Beck also pointed out the that new rules will not apply to cash purchases which are currently at a record high as a proportion of home sales.Housebuilders Persimmon, Barratt Developments, Taylor Wimpey and Berkeley all jumped strongly after the measures were announced, along with builders' merchant Travis Perkins and equipment rental firm Ashtead.BC