Bank Of England Warns Of Dangers Of Rising House Prices - “Temporary Self-Fulfilling Prophecy”

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DAILY PRICE REPORT

Today’s AM fix was USD 1355.75, EUR 977.47 and GBP 817.01 per ounce.
Yesterday’s AM fix was USD 1,348.00, EUR 973.57 and GBP 810.44 per ounce.

Gold rose $7.10 or 0.5% yesterday to $1,347/oz. Silver closed unchanged on the day at $20.81/oz.

UK Bank Base Rate (1694-2014) - BOE, Church House

Gold is higher in all currencies again today and has surged to the highest level in almost six months, as increasing geopolitical tension leads to safe haven demand. Concerns about the Chinese and indeed the global economy is also supporting gold. Gold has been particularly strong in sterling in recent days and is nearly 3% higher in sterling this week.

Russia, the world’s largest energy exporter, having taken control of Crimea is contributing to the worst crisis between Russia and the West since the Cold War. Overnight, Ukraine’s deposed Russian backed president warned of a possible civil war. The U.S. and EU have said that Russia must switch course in Crimea by next week or risk more sanctions.

Gold in British Pounds - 5 Years (Bloomberg)

Bank Of England Warns Of Dangers Of Rising House Prices - “Temporary Self-Fulfilling Prophecy”

The speed UK property prices are surging at is “approaching madness”, analysts have warned, after UK data showed house prices jumped 2.4% in February alone, the biggest monthly increase in five years.

According to the Halifax House Price Index, prices also surged 7.9% year on year to an average of £179,872. This marks the strongest price gains since October 2007, prior to the global financial crisis.

Speaking to the Telegraph, Oliver Atkinson, director at urbansalesandlettings.co.uk, said in parts of Britain “the momentum is approaching madness, as price rises continue to accelerate”.

The rise, revealed in the latest Halifax House Price Index, outstripped analysts’ expectations of a 0.7% rise, renewing fears of a house price bubble.

Interest rates will rise six fold by 2017, the Bank of England Governor Mark Carney said yesterday.

The increase to more “normal” levels is likely to plunge many borrowers into financial difficulty and put pressure on over extended mortgage borrowers and on the property market.

Carney said that Bank rate could reach 3% within three years, six times the current 0.5% rate.

Carney admitted that there were concerns that spiralling property prices could encourage people in other parts of London and Britain to take out mortgages that they would be unable to afford once interest rates start rising from their historic low of 0.5%.

“Our concern would also be that a rising housing market, occasioned in part because of the dynamics in prime central london, would encourage individuals to take greater risk without fully incorporating entire interest rate cycles that would transpire over the life of a mortgage,” he added.

He warned of the dangers of a “temporary self-fulfilling prophecy” of house prices just continuing to rise which could lead to many households taking on too much debt and leaving them in “vulnerable” positions for many years.

GoldCore believe that ultimately, London property prices are unsustainable and may be subject to a violent correction.

Given that interest rates are at historical lows, London property prices are vulnerable to any upward movement in interest rates. A material slowdown in the UK or in the global economy or even another global financial crisis would curtail international cash buyers leading to falls in London property prices.

Our most recent report looked at the London property market.
Download your copy here: Is London’s Property Bubble Set To Burst?