Lloyds investors betting on property rise

Lloyds Banking Group investors are betting that UK house prices will continue to rise across the country as the economy recovers.

The Treasury yesterday sold £3.2bn (€3.8bn) of shares in Lloyds, Britain’s biggest mortgage lender, leaving the government with a profit of £61m.

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 UK house-price inflation and particularly on the housing market pickup rolling out nationally,” said Colin McLean, who oversees about £600m as managing director at SVM Asset Management 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. UK house-price inflation accelerated to 3.3% in July from 3.1% in June, with London prices jumping 9.7%, data showed today.

The stake sale, the first since a £20bn bailout in 2008, came amid rising concern that the government’s Help-to-Buy programme 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 chief executive Antony Jenkins has said “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.

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% 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 programme. 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% this year, making them the best performer among the UK’s five biggest lenders. Barclays has increased about 13%.

“It was the right time to make the first move,” Danny Alexander, chief secretary to the Treasury, said in an interview yesterday. “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% from 38.7%. It still owns 81% of Edinburgh-based Royal Bank of Scotland.

The biggest block of Lloyds buyers were UK based, with an overall majority coming from Britain and the US.