Dear Reader, 

I have touched on this subject in previous months. But today we’re going to focus on a subject that could make many of us uncomfortable, because it is – quite literally – so close to home.  From this Friday (1st April 2016), new rules come into effect regarding buy-to-let investments, which many argue will put increasing pressure on the property market. Much was written after the Budget in February about this, of which we won’t repeat. But, yesterday, Andrew Bailey, a Deputy Governor at the Bank, told the Telegraph that, “the new rules are necessary to prevent a future housing market crash which could leave millions of people unable to support themselves in retirement.”

This is a salient point, I’m sure, for many of our readers, even if you are not technically a buy-to-let landlord. For example, I have elderly relatives who, last year, rented and remortgaged one larger property, in order to more quickly buy and move into a second smaller property.  I warned them repeatedly at the time that this was not the point in our inflation-deflationary cycle to buy one’s home based on the certainty you will be able to sell a second house at a future time at a price to cover that previous purchase.  To be dependent on the eventual sale of one property to cover the purchase on another, with any unnecessary drawn-out period in between, always has increased risk when a property crash is brewing. Thankfully, their foray as landlords will end in May when they sell the larger property to release the capital to pay off the remortgage.  In my concern for them, it can’t come soon enough, as it is natural to worry about our elderly relatives and the wisdom of their journeys into often un-researched financial markets.   

And the Deputy Governor of the Bank of England concurs: “Savers who are investing their money in housing risk being left without enough money to fund their retirement. The Bank announced a major clampdown on buy-to-let landlords on Tuesday amid concerns that increasingly “risky” lending could lead to another market crash.”

If you look at the following graph, you can clearly see that buy-to-let lending is now close to pre-crisis levels.

Graph showing gross by-to-let lending close to pre-crisis levels

(Source: Council of Mortgage Lenders)

“Mr Bailey said he was not surprised that buy-to-let lending had grown in recent years and suggested that “growth of housing as an ‘financial asset’ as well as a roof over your head” would continue in a world of ultra-low interest rates and poor annuity rates. However, he warned that if house prices crashed, this posed a risk for pensioners who relied on property investments to fund their retirement. “People might form expectations about what the necessary long-term saving to support their retirement will be, which can then [if house prices fall] be transformed quite suddenly in ways that frankly are unwelcome.” A beautiful example of British litotes.

We encourage our readers to call our C.E.O. Caroline Peers, to discuss the advantages, including TAX advantages, of holding some of your pension in Gold, rather than property at this time.

A quick look to China, one of the largest economies in the world, whose woos have reached our own in dramatic fashion in the first quarter of 2016, and it is visionary of what is to come in property investments:

China Housing Market Bubble:

While real estate is all about “location, location, location,” it appears there are sometimes more prescient factors that any prospective buyer should pay attention to. Amid yet another government-fueled housing bubble, it seems in their haste to fulfil a rapacious demand for property in which to gamble their hard-grafted assets, Chinese construction companies have cut a few corners. As the following stunning video shows, a “newly constructed apartment” crumbles before the owners’ eyes as the ‘concrete’ walls turn to sand… And the country is full of “ghost cities” and new apartment blocks waiting to be filled. Which is no surprise considering that China used about 6.4 gigatons of cement during their construction boom between 2011 and 2013, which is more than what the US used during the entire 20th century. However, those housing properties in China are frequently not built to stand the test of time: In 2010, officials revealed that many homes had a lifespan of just 20 years.  Just like buying worthless companies in the stock market bubble ended very badly, it appears buying ‘worthless’ homes is set for the same outcome...”  (Zerohedge, 29 March 2016)

Root Cause of the UK’s Coming Property Crash:

I politely disagree with the enthusiastic conclusions of the following property writer, who believes that, “George Osborne’s multi-billion-pound raid on landlords risks damaging Britain’s economic recovery. The Commons Treasury select committee (TSC) said the Chancellor’s measures to curb the buy-to-let housing market could cost jobs and put a brake on growth. The cross-party committee said a new stamp duty “surcharge” on buy-to-let properties and second homes from April was likely to result in a reduction in the supply of privately rented homes and push up rents. This could lead to fewer jobs being created as people find it harder to relocate for work, it claimed.  “Were the measures taken to curb buy-to-let to have a substantial effect, they would come at a cost to the wider economy,” the TSC said in a report.” 

In contract, I believe the British economy is in danger from many international factors, which have been building since 2008 – quantitative easing, our debt to GDP ratio, the threat of zero interest rates spreading here from Europe, the economic fragility of the Euro project, the list goes on.  All of these have been at play for many years.  The recent changes in property investment rules may add a straw to the camel’s back but I suggest will not be the root cause of any coming economic collapse.

Deputy Governor of the Bank of England continues, ““I’ve been in the Bank for 30 years and I’ve seen two [stock market collapses] happen, and I’m very keen not to see a third one.”

But is that what we are facing, a crash on a par with the previous two?  Many commentators think not. They believe the next crash will be far worse than the previous two, because now we are in a strong deflationary cycle.  

Housing Market Crashes in Deflation:

And here’s what that means in monetary historical terms.  The following is an extract from a short video discussion between Mike Maloney and Harry Dent:  “And in fact if you look historically at this winter season where you get deflation – only once in a lifetime, that’s what people don’t understand – it is typical for stock markets to go down 80 to 90% before they bottom.  It’s not like the 70’s or your other deep recessions when they go down 50% or 60% or even like 2008.  80 to 90% is what you’d expect.  And guess how much Japan’s stock market went down went it bottomed?  80%.  Despite endless QE, it still went down 80%.  And Japan’s real estate went down 60%. Nobody in this country a few years ago, and few people even now, think that real estate could go down 60% and really not come bouncing back as usual. This is exactly what demographics and exactly what history would say is going to happen.”  (Stocks To Plunge 80-90% In Deflation – Harry Dent With Mike Maloney.)

Is there anything we can do about these figures?  Well, we can plan to off-set part of our investments in an asset that historically moves in the opposite direction to property and that is Physical Gold and Silver.  If house prices are rising at the same time as Gold, then history shows us that the currency market is being propped up by the government printing more money. But in reality, as one asset class goes up the other competing asset class should go down, as investors move from one asset class into the other and vice versa.  If both rise, then a monetary crash will come, at some point, as this is proof that monetary policy has become extremely loose.

The clearest way to see that Gold and Silver are currently under-priced and that Property is currently over-priced:

In 2012 Bleyer attended the London Property Show to give seminars to some of the wealthiest investors in the city.  One of the most interesting graphics we used was “House Prices in ounces of Gold and Silver.” Historically, it clearly shows which asset is on the way up and which is on the way down in their price cycle.  And I’m clearly not the only one to find this comparison superbly interesting. This month last year Money Week focused on exactly the same dynamic and apparently it is one of their most popular topics too: “Of all the subjects I cover in Money Morning, there are two which attract more hits and comments than any others. The first is house prices. No surprise there. Love them or loathe them, everybody’s interested in house prices.

The second is gold. Again, no surprise there. It’s a sexy metal, it’s a political metal, it fires people up. But – rather bizarrely – when I write about house prices measured in gold, that really brings in the hits.” (Dominic Frisby

Now, I thoroughly enjoy Frisby’s writings on Gold and any of our readers that have followed my articles for a number of years will know I’ve quoted from him before.  Here he writes with such accessible clarity on the Property to Gold and Silver ratio. He continues with the one question that we at Bleyer encourage our readers to research even more fully than one blog allows and it is this:

Why it makes sense to measure property prices in gold terms:

Until 1914, and then between 1925 and 1931, Britain was on a gold standard. You could buy a house with gold. Now, of course, you can’t. But that doesn’t invalidate the practice of comparing the ratio between the two to determine relative value. As gold is so constant, it makes an extremely effective unit of account.”

“As for UK property, there are two things that push me into the bear camp. First, the train crash waiting to happen that is London new build.”  NB:  I wrote on this only a few months ago in a piece entitled, “They’ll huff and they’ll puff and they’ll blow your house down.”

“Second, the demographic shift. The under 40s can no longer afford houses in areas they want to live in. They are getting older. As each year passes, more people are coming into the workplace, wanting a place and unable to afford one. The political desire for high property prices is waning.  Once the gold-to-house-price ratio turned in 2005, it was easy to declare that the market was heading lower. This time around, older, wiser, with less testosterone in the system, I can only cautiously – not confidently – argue that gold is going to outperform property. 

The sheer volume of overpriced new-build property coming to market in London is bound to mess with these averages over the next 24 months. The choice between gold and a London new-build is an easy one. Between gold and a period property, it’s less clear. But at the moment I think I’d go for gold.” (Frisby, Money Week)

And it’s not just Gold but Silver too:

“When silver went to $50 in April 2011, you could buy the average UK house for 6,000 ounces. At 17,500 ounces, UK houses have almost tripled since then in silver terms. In London they’re up four fold.”  

In conclusion, this is yet another warning sign, taking in tandem with yesterday’s comments by the Deputy Governor of the Bank of England, that house prices are over-priced.  As with any investment moves, we’re looking to move before the crowd, to spot the next move, not the current one. 

Bleyer stock a wide variety of Gold and Silver bars and coins.  To discuss your investment please call one of the team on 01769 618618 or email

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