1988 An Explanation Please

[Rain'ard]

I called into one of my employers EA branches today to speak to one of the sales people I’m friendly with.

After talking about the price of fish, I moved the conversation on to the price of houses.

I said I’ve been looking in the window and I see that the one and two bedroom flats still wont come under the £100K psychological barrier, assuming she was in concord that the tide had turned.

“No” she replied, “They will not accept that people are not prepared to pay these high prices. “You try telling them” she added

This lady has been in the job 19 years. She said things were so slow, she spent the morning weeding the forecourt of the shop.

The most significant point she made was that the situation now reminded her of 1988.

I not clear what she meant, maybe someone on the forum remember what the conditions were then.

[barnettaj]

As I said on a post earlier today, all the indications are we will have a repeat of the 1989 90 recession and crash

[eek]

From memory there was a rush to purchase houses prior to double/ triple miras being removed.

Once that fateful day had been and gone the market simply stopped. While people could afford to borrow £60,000 or so where all that sum had tax concessions they could not afford to borrow the same £60,000 when only £30,000 had tax concessions against it. Suddenly houses were more expensive on a month by month basis and the market reach an impasse (no one could afford to pay the old prices and those selling could not see why what was a valid price on 30th June was not viable on 1st July).

[Marina]

I called into one of my employers EA branches today to speak to one of the sales people I’m friendly with.

After talking about the price of fish, I moved the conversation on to the price of houses.

I said I’ve been looking in the window and I see that the one and two bedroom flats still wont come under the £100K psychological barrier, assuming she was in concord that the tide had turned.

“No” she replied,  “They will not accept that people are not prepared to pay these high prices.  “You try telling them” she added 

This lady has been in the job 19 years.  She said things were so slow, she spent the morning weeding the forecourt of the shop.

The most significant point she made was that the situation now reminded her of 1988.

I not clear what she meant, maybe someone on the forum remember what the conditions were  then.

<{POST_SNAPBACK}>

Either her memory or mine is playing up. My memory tells me that in 1988 it was a frenetic market with the papers full of stories of monster HPI - just like up until about a year ago.

In 1989 the chancellor announced the abolition of joint tax relief on mortgages. In those days you got tax relief at the whatever rate of tax you paid on the interest part of your mortgage on the first 30k of the loan. (So the nutty interest rates we paid in those days were softened by this.) An anomaly in the taxation system meant that married couples got relief on 30k of any loan, but two single people living together got 2 x 30k. So it paid not to get married. The chancellor at that time, one Nigel Lawson, a fool of the first order (father of the divine Nigella) announced several months in advance that the joint mortgage tax relief would end, if memory serves, at the end of July '89. Needless to say there was a stampede to buy before the deadline and this caused already nutty prices to go even nuttier. On August 1st it was as if someone had turned the lights off. Anyone who hadn't managed to buy now simply couldn't afford to. The ensuing HPC lasted about 6 years until things bottomed and during this time selling a property was bloody hard work. You put it on the market and just hoped it fitted the bill for someone - and then you took whatever offer they made if you actually wanted to move.

Many EAs went broke and the some of the big insurance companies that had bought up chains of EAs in the 80s sold them off as loss making enterprises.

Just checked - it's my memory that is playing up - it was 1988.

I just found this:

15. 3.88

Budget. Abolition of multiple mortgage tax relief with effect from 1.8.88 prompts a surge in mortgage lending April-July. Also abolition of tax relief for loans for home improvement with effect from April prompts some rise in such lending in March.

Edited July 5, 2005 by Marina

[Guest consa]

From memory there was a rush to purchase houses prior to double/ triple miras being removed.

Once that fateful day had been and gone the market simply stopped. While people could afford to borrow £60,000 or so where all that sum had tax concessions they could not afford to borrow the same £60,000 when only £30,000 had tax concessions against it. Suddenly houses were more expensive on a month by month basis and the market reach an impasse (no one could afford to pay the old prices and those selling could not see why what was a valid price on 30th June was not viable on 1st July).

<{POST_SNAPBACK}>

I thought it was August???

[mbga9pgf]

Difference is, we now have global media and national tinternet. something happens in outer benbicula, if its posted, I know before reuters. And THATS what may accelerate things this time. Just look at consumer confidence since the election. No coincidence, I am sure.

[eek]

I thought it was August???

<{POST_SNAPBACK}>

Probably was. As I said from memory and I can rarely remember last week let along 17 years ago.

[eek]

Difference is, we now have global media and national tinternet. something happens in outer benbicula, if its posted, I know before reuters.  And THATS what may accelerate things this time. Just look at consumer confidence since the election. No coincidence, I am sure.

<{POST_SNAPBACK}>

I don't think it will have any effect. Just look at how many people are in serious debt and yet how few actually post on moneysavingexpert.com .

For those who can see what has been happening the internet is a godsend for getting your views confirmed by others. For those who refuse to look before its too late (and believe me most people fall into that trap) even if you plonked the Janet and John book of House price Bubbles in front of them they still wouldn't see the issue.

[gasket37]

far be it from me to defend lawson, but he did want the inland revenue

to alter the MIRAS rules at the time of his '89 budget.

however then, as now, the inland revenue told him they needed 6

months to implement the changes to their I.T. systems so hence the

6 month delay.

the rest, they say is history!

[Wurzel]

The situation will be very different this time, I remember completing on my first flat just as the Miras rules changed, there was still plenty of activity in the south west for another 12-18 monthes before it stopped dead. With the better mobility and media information access this time there will not be this time lag, last time it started in London and filtered through to the regions up to two years later.

[Marina]

The situation will be very different this time, I remember completing on my first flat just as the Miras rules changed, there was still plenty of activity in the south west for another 12-18 monthes before it stopped dead.  With the better mobility and media information access this time there will not be this time lag, last time it started in London and filtered through to the regions up to two years later.

<{POST_SNAPBACK}>

I think the situation is very similar this time. As evidenced by that skinny airhead from the BBC - property in the smart bits of London now appears to be worth what it was 4 years ago. This stagnation trickled out to the Home Counties about 3 years ago and is now making its way to all the regions. Now what has been happening in London and the South East for a few years (first a stagnant - then falling - market) is beginning to happen throughout the UK. And it's beginning to get mainstream media coverage etc. It's interesting really - while properties in places like Leeds were tripling in value between 2002 and 2004, properties in London and the South East had already reached a plateau. A lot of the increases in the North and Wales were caused by investors from the South East looking further afield for places where there was still the potential for capital growth.

It seems because of the media obsession with one headline annual rate of HPI - huge regional differences are masked and while this has been happening people have carried on MEWing and MEWing in the mistaken belief their property was still going up and up.

[zorn]

far be it from me to defend lawson, but he did want the inland revenue

to alter the MIRAS rules at the time of his '89 budget.

however then, as now, the inland revenue told him they needed 6

months to implement the changes to their I.T. systems so hence the

6 month delay.

the rest, they say is history!

<{POST_SNAPBACK}>

He couldn't reasonably have done it immediately, anyway. He had to allow transactions that had already begun in the expectation of dual relief to continue to completion, which meant that the six month delay was needed.

What he should have done is what Gordon Brown eventually did with all MIRAS, which is to phase it out gradually for existing loans as well as new loans, so as not to set such a sharp deadline for everyone.

[newbie]

I think the situation is very similar this time. As evidenced by that skinny airhead from the BBC - property in the smart bits of London now appears to be worth what it was 4 years ago. This stagnation trickled out to the Home Counties about 3 years ago and is now making its way to all the regions. Now what has been happening in London and the South East for a few years (first a stagnant - then falling - market) is beginning to happen throughout the UK. And it's beginning to get mainstream media coverage etc. It's interesting really - while properties in places like Leeds were tripling in value between 2002 and 2004, properties in London and the South East had already reached a plateau. A lot of the increases in the North and Wales were caused by investors from the South East looking further afield for places where there was still the potential for capital growth.

It seems because of the media obsession with one headline annual rate of HPI - huge regional differences are masked and while this has been happening people have carried on MEWing and MEWing in the mistaken belief their property was still going up and up.

<{POST_SNAPBACK}>

Marina, when do you think that central London peaked?

[justanewbie]

I have had the distinct impression over the past 3 years that the

internet - eg Rightmove - has been heavily used in the boom as

people shop for houses often outside of the area in which they

live - holiday homes, holiday rentals and buy-to-lets.

It would seem logical to suppose that this use is increasing and will

prove a factor as prices deteriorate.