The Big Short: Movie chronicling the craziness that caused the last credit crunch feels uncomfortably relevant no

The script of the next crash, the 'Slump of 2018', will have different actors

Christian Bale plays Michael Burry in The Big Short from Paramount Pictures and Regency Enterprises (Paramount Pictures)

It felt like a scene in a film. I emerged from a press screening of The Big Short, the new movie about the crazed American housing market of the 2000s and the resultant financial crash, into a busy West End. I was, like most that will see it, left wondering where the next crash was coming from. The London property bubble naturally presented itself in my head.

I stopped by a pub for a quiet pint to collect my thoughts. And there, next to me, were two Australians, as it happens, discussing the silly prices being demanded for a small flat in a place near (ie not even in) Brighton.

The figure was some £300,000 for a one-bed gaff, which would require a salary of £85,000 a year for a first-time buyer, and a deposit of £75,000. On and on they went. Mercifully their conversation soon moved on to cricket.

That serendipitous snatch of barroom chat confirmed in me a long-standing belief – fear really – that although what happened in Florida and the sunshine belt of the US in the 2000s is not quite happening in London in the 2010s, something a bit like it is.

The problem back then, amply illustrated in The Big Short by idiot estate agents and greedy bankers, was that the American banks were lending huge amounts of money to people who had little hope of repaying it if anything went wrong with the housing market. While it was going up inexorably, and everyone believed it would, “investing” in real estate was a safe bet.

The Miami stripper portrayed in The Big Short, who owned five houses and a condo, was perfectly plausible as a symbol of the madness of the time. They called such lending “subprime”, where even the jobless and the fraudulent could get a dream home.

In Britain we had some of that too, as our former building societies lent ever larger portions of the property value – maybe in excess of 100 per cent, so the borrower had a little bonus to buy a car. Then all those loans were packaged up, diced and sliced into various bonds, and sold on and on and on with the eventual owners having little idea of what lay behind the packaging.

The answer, as we now know, was “toxic” – people who were very likely going to default on their repayments as soon as the ultra-low “teaser” rates ended.

The other side of that boom was the few weirdoes who predicted that it was going to turn to bust and were prepared to place large bets on this unthinkable event – the “short” in The Big Short.

When it happened, the banks they had bet with had to cough up, and they coughed blood. Hence the collapse of Bear Stearns, Lehman Brothers, and much of the British system too. As countries tried to rescue their banks, the bills were so enormous that they made the countries bust too – Ireland, Iceland, Spain, Greece. Taxpayers, one way or another, paid the price. Ugly.

Is the London housing bubble about to burst? Yes. Will it happen in the same way it did in America in 2007? No.

By any judgement, much of the UK housing market is vastly overvalued. It has run way ahead of the traditional income multiples – around three-times’ earnings. As we should all know, too, most people’s incomes are hardly advancing in real terms; 2 per cent this year if you’re lucky.

So how come prices are sky high? They are fuelled at the top by foreign money from nations with problems: the Gulf Arab states, Russia, China. That has pulled all the prices up – but it seems highly likely that when the new money coming in starts to slow, the whole market will begin to implode.

Prices will fall. That won’t matter provided the economy grows and everyone holds on to their jobs. But it won’t; and they won’t.

Then the defaults and repossessions and distressed selling starts. The psychology of the market will switch back to the notion that prices can never go up, just as no one thinks it possible now that they can go down.

That will, once confidence has been beaten down, turbo-charge the decline just as it did the rise.

After 2007, the housing crash hit the banks because they had lent too much. But the banks have been more stingy lately; most borrowers have had to put up a hefty deposit, and that, their equity in the property, is the thing that will absorb the losses and leave the banks mostly unscathed.

The script of the next crash, the “Slump of 2018”, will therefore have different actors – first-time buyers, the Bank of Mum and Dad who gave them or lent them their deposit, “hard-working families” as the fashionable phrase goes: painful, but it won’t bring the financial system down, or the economy with it, and taxpayers won’t have to pick up the bills. But it still will be an uncomfortable watch.