Warning to buyers as house prices soar again

As house prices soar close to levels not seen since the 1980s, new research has offered a stark warning of what happens when the music stops.

One in 10 of all homebuyers sucked into the market in 1989 – the peak year of a speculative boom – have since lost their homes. As almost 1.3 million people took out a loan, that means around 130,000 households have had their homes repossessed at some point over the last 13 years.

The warning from Moody's, a credit ratings agency, comes as the Halifax, Britain's largest mortgage lender,publishes figures today for house prices in August. They are expected to echo those from the Nationwide building society, which said last week that house prices are rising at almost 23 per cent – the fastest rate since 1989 when they hit a peak of 35 per cent.

Moody's tracked mortgages taken out between 1985 and 2000 and found that loans made in 1989 showed the highest level of defaults and repossessions. Those most at risk were those who climbed on the bandwagon last because they did not share in the rise in the value of their home earlier in the boom – what Moody's calls the "equity cushion".

Nicholas Lindstrom, a senior analyst with the agency and the report's author, said: "Borrowers in 1989 gained limited benefit from equity cushions gained through house price rises before the recession."

The mortgage lenders also suffered most from loans made in 1989 – recovering on average just 55 per cent of their loan via repossession.

But the number of houses repossessed in the first six months of this year has fallen to an 18-year low of 6,850. And Moody's said it did not expect "future performance to mimic the past".

"By historical standards that period was unusually stressful," said Mr Lindstrom. "Some lenders have learnt from the 1980s and made significant efforts to monitor their pool of mortgages."