The last housing crash

Cliff D'Arcy takes an in-depth look at the sharp drops across the UK during the last slump.

Although it started over eighteen years ago, I recall the last property slump very clearly. The cracks in the property market started in the summer of 1989, when I was still at university in London. Being an impoverished student prevented me from getting on the property ladder. Thus, I was fortunate to miss out on the late dash to buy property and the price falls that later followed. Phew!

However, in mid-1992, my girlfriend (who later became Mrs D'Arcy) and I decided to buy our first home, with some helpful financial support from her father. Eventually, we found a little house that appeared to be right up our street (pun intended). It had been on the market for £100,000 without success, leading the sellers to drop the price to £90,000.

Given that property prices had been falling steadily over the previous few years, I knew that buyers were in a good negotiating position. Hence, I offered the sellers £15,000 less than the asking price, or £75,000. It turned out that the house needed some damp-proofing work, which I paid for by agreeing a further £2,500 reduction. Thus, I bought for £72,500 against an original asking price of £100,000. That's a 27.5% reduction, which isn't bad, agreed?

(Although I may have timed my entry to the housing market almost to perfection, that's more than I can say for my exit. Since selling my house in the spring of 2005, it has risen significantly in value. So, I'm a long way from being a property guru!)

Still, my own experience of buying a property during a downturn provided me with an interesting lesson on how low prices can go when sellers get desperate. But how does my personal anecdote compare with the rest of the UK's property crash? Let's take a look, using the quarterly house price index (HPI) figures provided by Halifax, the UK's biggest mortgage lender:

Across the UK, from peak to trough

According to the Halifax HPI, here are the figures for the top and bottom of the housing crash for the UK as a whole:

Therefore, in the 6¼ years between mid-1989 and the end of September 1995, the average UK property lost an eighth (12.5%) of its value. However, most of this fall occurred from 1989 to 1992. House prices then drifted up and down during 1993 to 1995 before setting out on a twelve-year winning streak.

So, that's the situation for the United Kingdom as a whole. Now let's find the individual peaks and troughs for each of the UK's twelve regions (in alphabetical order):

East Anglia

As you can see, the property market peaked earlier in East Anglia than it did in the UK as a whole, and prices started to recover much earlier, hitting a low in early 1993. However, the plunge was much more painful in the fens, with prices dropping by more than a third in 4¼ years. Ouch!

East Midlands

The East Midlands peaked and bottomed out at the same points as the UK as a whole, but the decline was steeper at a fifth (20%). Thus, homebuyers in this region suffered a bit more than those in the UK generally.

Greater London

London peaked six months earlier than the rest of the UK and began its recovery in early 1993 - 2½ years ahead of the rest of the UK. Today, many people view London as a housing ‘fortress' which will avoid much of the pain to come. Alas, history tells a different story, with a peak-to-trough loss of 28% in just 4¼ years. Yikes!

Northern Ireland

Northern Ireland is an interesting case, as it largely avoided the boom and bust experience elsewhere. This is in part thanks to its geographical separation from the rest of the UK, and partly due to the political and social situation that existed before ‘The Troubles' ended. Indeed, apart from a 0.9% drop in 1989 and a 2.5% fall in 1992, NI property prices have risen every year since 1984.

Amazingly, the average property in the Six Counties is now valued at £216,255, compared to £197,071 for the rest of the (much higher-earning) UK. Thus, in my view, the housing bubble in NI is under the greatest pressure and will burst spectacularly. The outcome will be far from pretty!

North West

Property prices in the North West peaked much later, with the top arriving two years after the UK peak. Then again, they began recovering at roughly the same time. However, NW prices dropped slightly more than the UK as a whole, down a seventh (14%) over 4½ years.

North

The North did rather well in the last property downturn, with the average price peaking much later at the end of 1991. However, prices started rising in Q3 1995, in line with the rest of the UK. Thanks to its shorter ‘property recession', prices in the North declined a mere ninth (11%) during its setback. That's a slight improvement on the UK in general.

That's the first six regions of the UK out of the way. In part two of this article, I look at the remaining six regions: the South East, South West, Scotland, Wales, the West Midlands, and Yorkshire & Humberside. See you there!

Compare mortgages at lovemoney.com