Bank of England Ready for 'Scalding Hot' Housing Market

Friday, 27 December 2013

The Bank of England's chief economist, Spencer Dale, says that rising house prices can underpin economic recovery, but warns that the UK must watch out for 'microwave-style' rapid overheating.

As 2013 draws to a close, house prices continue to rise at their fastest rate since 2007. While this is great news for those who managed to get onto the property ladder, Dale believes that there are potential pitfalls to the growth. Speaking to the Confederation of British Industry, he commented:

"The UK housing market has a sort of microwave type quality to it, with a tendency to turn from lukewarm to scalding hot in a matter of a few economic seconds."

A recently revealed divide between house prices in the southeast and the rest of the UK suggests that some parts of the country are already seeing Dale's theory in action. House prices in Central London are increasing at an alarming rate, with prices soaring by 43% since November 2007. Meanwhile, areas like Hartlepool have actually seen prices decline.

What's more, separate research by Professor James Mitchell of Warwick Business school suggests that Northern Ireland, Scotland and the east of England are the only regions where house prices are not over-inflated.

With a continued shortage of new homes and more lenders ready to open the purse strings, 2014 is likely to see house prices pushed higher - making it all the more important for homeowners to get competitive home insurance quotes.

However, Dale did have some reassurances to offer. He reiterated that the new Financial Policy Committee has been empowered to address excessive increases in the market - and those with a mortgage will be pleased to hear that the Bank of England is not currently considering an early interest rate hike.

Whether or not 2014 will see prices rise to a comfortable and controlled plateau, or whether one or more of the speculative bubbles will burst, still seems to be up for debate.

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