Over the last eight years, Sarah Beeny has helped countless people launch their careers in property developing. Even when they didn’t make the wisest of decisions, a rising market saved them from financial ruin.
Two years ago, when house prices were at their peak, lots of people were only just embarking on their own quests to make a fortune from property. Little did they know that the boom they were banking on was about to turn into bust.
This week we'll be following two of those families as they try to navigate their way through one of the biggest and fastest financial meltdowns in living memory. But first, here's what the experts have to say about the changing face of the UK housing market.
'It used to be the case that trying to get much more than three times your income to afford a property was very, very difficult. In the past few years, you’ve been able to borrow five, six, or seven times your income. The usual rules just haven’t applied. Banks were very much chasing the quick profits, in a similar way to what supermarkets have done by piling the products high and selling them cheap.
'One of the indicators that things weren’t right with the UK property market should have been that even while things were going up during 2006 and 2007, the number of homeowners in the UK actually fell. It wasn’t first time buyers that were building the growth in house prices, it was people who already owned houses buying more properties.'
'Easy credit is what built the housing bubble to such a state that when it popped, it’s popped so severely that it brought down the entire economy with it. A number of independent forecasters were claiming doom was about to happen and yet no one wanted to listen, because no one wanted to believe that they could possibly lose money on their property.
'Without first time buyers actually being able to get onto the ladder, you can’t actually have recovery which is sustainable. So you need to have activity at the bottom end, the middle end and the top end of the market.'
'The most famous product was the Northern Rock Together mortgage, which offered you 125% of the price of a house. That’s a dangerous thing to do, because you were already in negative equity from day one.
'Property prices are not dependent on supply and demand of houses. It’s about the supply and demand of credit. As long as there’s easy money knocking around, house prices will rise.
'If you think that the average salary is, for argument's sake, £25,000, and the average house price is around £150,000, that means we have a ratio of six times income. When it falls to say, four times income, it might be reasonable to say that the market had begun to bottom out.'
'The issue for the banks wasn’t whether subprime lending made long term common sense, it was whether or not they could sell those loans on to investors, pension funds and so on. The trick was not to get left holding the bomb, and as long as you could sell it on before it went wrong, you’d be fine.
'One saving grace in the current climate is that lower interest rates have made mortgages more affordable. Provided people hold onto their jobs a lot of them are likely to be able to ride out the current cycle.'
Go to the next page to learn about the first of this week's developments from Property Snakes & Ladders...
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