Crash course: What we learnt from the 1980s

House prices are falling. Repossessions are up. So are we heading for another recession? Four experts who survived the last big crash explain why 2008 should not be the year of a similar meltdown. Interviews by Phil Thornton

Wednesday 27 February 2008 01:00

'Agents must be at the top of their game'

The estate agent: Peter Bolton King:

I came back from a holiday at the start of autumn 1989 and my first job, as a partner at Locke & England in Leamington Spa was a meeting with the managers. I looked at them and asked, "What's the matter with you lot?" They said, "The market's gone." It was weird. I had only been away for two weeks but it had stopped overnight.

The phones stopped ringing and people simply stopped coming through the door. Like all estate agencies, Locke & England, part of Black Horse Agencies, had to adapt.

I'm now the chief executive of the National Association of Estate Agents. I'm expecting a soft landing this time, rather than a crash, with zero price growth in 2008. There is a big difference between then and now. In the early 1990s there were high interest rates, high unemployment and high inflation. We have none of those three things now.

I don't think we should panic. In 1991 mortgage repossessions – people losing their homes – hit a record of 75,000. It was horrendous. Interest rates went from 8 per cent to 13 per cent in six months – I remember, because I was a homeowner who had just increased his mortgage when interest rates doubled. The repayments were massive.

It will be important for estate agents to give good advice. Consumers are quite right to be tougher on agents, insisting on good service, in the next year or so. Any monkey can sell a property when the market is good but when the market tightens the cream rises to the top.

'It's not going to be Armageddon this time around'

The analyst: John Wriglesworth:

As the only City analyst covering the housing and mortgage markets and building societies in the late 1980s, I was at the eye of a media storm when house prices collapsed.

I don't claim to have predicted the crash, but I swiftly became aware that the downturn would be severe. And I correctly assessed that two million people were in negative equity when the industry insisted it was only 400,000.

As for predictions, I thought today's housing market was heading for a soft landing before the credit crunch hit. Now, with consumer confidence shaken and financing drying up, I believe prices will fall by 5 to 10 per cent over the coming year or so. It's not Armageddon this time. Last time, interest rates went from 7 per cent to 13 per cent in a year, and for people on a mortgage three times their income that took a huge chunk of their cash. It was insurmountable – demand collapsed. Many got into negative equity. You simply couldn't move.

John Wriglesworth is managing director of The Wriglesworth Consultancy, a financial pubic relations firm

'The big banks are much less aggressive now'

The housing charity adviser: Gina Dolan:

In 1991, I was working for the charity Shelter, as the housing aid centre for co-ordinator for Welwyn Garden City. More than half of the calls we were taking were from people about to lose their homes. It was desperate. We had people in our offices crying.

Some of the lenders back then were awful. One would start proceedings once the second payment was missed. They would make sexist and racist comments and refuse to discuss terms. It was all so emotional. We had to tell people not to put the keys back through the building society's letterbox.

It's now very rare for the major mortgage companies to act like that. I'm Shelter's Hertfordshire area manager these days and we're seeing an increase people struggling to pay mortgages. We're seeing about 30 people a month – 10 will be people with mortgage arrears; 20 will have rental difficulties.

The repossession cases we're seeing now are most often from home-loan companies – sometimes it will be the second or third loan that someone has secured on their home. Once people are involved in those loans, the companies can be quick act if they struggle with payments. It still seems to be fairly rare for one of the big mortgage companies to move to repossess.

It was very sudden in the Eighties. It's not like that now, but it's going in the wrong direction. You can feel the downturn creeping in – especially at the courts. While a few months ago people could sell up when they got in trouble, now it's taking longer. The most important thing is to get independent, free and impartial advice. Even if you just have a bad feeling about the situation, get expert advice.

'This is a downturn – not a recession'

The mortgage lender: Mark Boleat:

When the red-hot house price boom turned to bust last time around, I was in the hot seat. As the director-general of the Council of Mortgage Lenders, I was the head of the trade body representing mortgage lenders. The turn came fairly quickly, in 1988. There were clear reasons for it – a combination of rising interest rates and soaring unemployment levels, and millions of people were clearly at risk of losing their homes. That's the big difference between then and now.

Of course, we don't know what's going to happen further down the line, but it doesn't feel like a recession. I expect house prices to fall by between 5 and 10 per cent – that's a pretty bog-standard downturn. But, of course, a price downturn has nothing to do with whether or not people can afford to pay their mortgages. That's governed by interest rates and unemployment. As long as rates stay low, we shouldn't suffer another recession.

I don't think the Government is going to do anything about the housing market – although you never know. Back in the last recession, some of the key achievements were persuading the Government not to act. The work I did with John Major, then a social security minister, prevented abolition of income support for mortgage payers. Margaret Thatcher had accused building societies of helping to keep striking miners in their homes during the dispute, and wanted to cut income support. The downturn would have been very much worse. The market runs on economics, not policy. I don't think the Government is going to do anything to prevent a recession, and I don't think they should.

People talk about the non-doms, and whether things will drop off if they leave the country. That could be significant at the top end in London, but only time will tell. That said, repossessions are unavoidable. In the 1980s, it was clear we were in for a downturn. Mortgage lenders were very slow to catch on to what was going on. They had a solution for dealing with arrears – repossession. It took us a long time to get across to them that repossession hurt their bottom line. It was ludicrous for lenders to evict families who were paying 80 per cent of the mortgage on a home of which they owned 80 per cent.

Mark Boleat is the founder of Boleat Consulting, which offers advice in various sectors, including housing

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