Were there many STRs before/during the last crash?

Generali

Gorgeous_George wrote: »

A popular misconception. The following table shows the average BANK OF ENGLAND base rate over the previous SIX MONTHS.

Mortage rates were typically a couple of percent higher.

01/03/1988.....9.0
01/06/1988.....8.3
01/09/1988.....9.1
01/12/1988.....11.3
01/03/1989.....12.5
01/06/1989.....13.0
01/09/1989.....13.5
01/12/1989.....14.1
01/03/1990.....14.7
01/06/1990.....14.9
01/09/1990.....14.9
01/12/1990.....14.5
01/03/1991.....13.9
01/06/1991.....12.7
01/09/1991.....11.5
01/12/1991.....10.7
01/03/1992.....10.4
01/06/1992.....10.3
01/09/1992.....10.0

GG

I had wondered why the BoE table didn't show rates rising to 15% as I clearly remember the announcement:

Link

A little research shows that Lamont "sanctioned" interest rates rising to 15% but it was never carried out.

PS - GG your rate chart won't show what happened to rates during the 'ERM crisis' (which seems much less of a crisis with 15 odd years of hindsight) as Black Wednesday was 16th September 1992.

neverdespairgirl

Generali wrote: »

People in privately rented housing were given security of tenure (effectively indefinitely) and rents were controlled by a state-run body. Generally, if you planned to stay long-term, you would be free to do the place up if you wanted.

There are still people living with this security of tenure - people who have been tenants since before the AST came in.

Generali

neverdespairgirl wrote: »

There are still people living with this security of tenure - people who have been tenants since before the AST came in.

Indeed. And you can often buy these at auction.

I lived in a horrible ground floor flat in Balham in the early 90s on an AST and couldn't understand why the people upstairs would buy a new kitchen and bathroom for a rented flat they had lived in for a good few years. It took me years to work it out. My biggest fear at the time was that my damp ridden flat would crumble away and their new (heavier presumably) kitchen would end up on top of me!

bristol_pilot

My recollection of that time is that there was more or less no high quality private rented accommodation available - you had to buy a property to have somewhere decent to live. Most private rented stuff was in poor condition and just about acceptable to students but that's about it. If you had a 'professional' job you bought, blue collar workers rented from the council or also bought. It was easy to get a mortgage for up to 3 times your income, diificult for anything beyond that.

IIRC the mass redundancies started AFTER the initial house price falls, but both continued for a number of years. However the FEAR of redundancies started a year or so before they actually appeared and helped to push prices down further - no-one was buying. Where I worked, 80% of people lost their jobs over a period of 2-3 years. People who thought they wouldn't be affected because they were in good jobs like managers, lawyers and accountants found that their jobs were not safe at all! Insolvency practitioners did well though.

Interest rates did reach a peak of almost 15%, but it is often forgotton that they were 8-10% to start with whereas now base rate has risen to 5.25% from a starting point (low) of 3.5% so the proportionate effect on monthly mortgage payments is likely to be similar.

I don't think the existence of the internet makes much difference tbh - there was plenty of info on TV, radio and in the newspapers all about house price crashes and job losses. People still 'chatted' back in 1991.

Generali

bristol_pilot wrote: »

My recollection of that time is that there was more or less no high quality private rented accommodation available - you had to buy a property to have somewhere decent to live. Most private rented stuff was in poor condition and just about acceptable to students but that's about it. If you had a 'professional' job you bought, blue collar workers rented from the council or also bought. It was easy to get a mortgage for up to 3 times your income, diificult for anything beyond that.

IIRC the mass redundancies started AFTER the initial house price falls, but both continued for a number of years. However the FEAR of redundancies started a year or so before they actually appeared and helped to push prices down further - no-one was buying. Where I worked, 80% of people lost their jobs over a period of 2-3 years. People who thought they wouldn't be affected because they were in good jobs like managers, lawyers and accountants found that their jobs were not safe at all! Insolvency practitioners did well though.

Interest rates did reach a peak of almost 15%, but it is often forgotton that they were 8-10% to start with whereas now base rate has risen to 5.25% from a starting point (low) of 3.5% so the proportionate effect on monthly mortgage payments is likely to be similar.

I don't think the existence of the internet makes much difference tbh - there was plenty of info on TV, radio and in the newspapers all about house price crashes and job losses. People still 'chatted' back in 1991.

My memory was that it was clear for all to see that there would be a recession in about 1990 - things were clearly going badly wrong from 1988/9. I also remember the Tories warning against "talking ourselves into recession".

Trollfever

I like this:

1992: UK crashes out of ERM
The government has suspended Britain's membership of the European Exchange Rate Mechanism.

The UK's prime minister and chancellor tried all day to prop up a failing pound and withdrawal from the monetary system the country joined two years ago was the last resort.
Chancellor Norman Lamont raised interest rates from 10% to 12%, then to 15%, and authorised the spending of billions of pounds to buy up the sterling being frantically sold on the currency markets.
But the measures failed to prevent the pound falling lower than its minimum level in the ERM.
The second rise in the interest rate was reversed by the beleaguered chancellor soon after the withdrawal from the ERM, setting it at 12%.
The move is a dramatic U-turn in government policy, as only last week Prime Minister John Major reaffirmed the government's commitment to remaining within the mechanism.
Mr Lamont admitted it had been an extremely difficult and turbulent day, but a Downing Street spokesman said he would not resign.
The shadow chancellor, Gordon Brown, said colossal errors of judgement by the prime minister and chancellor had betrayed the British people.
Liberal Democrat leader Paddy Ashdown said the government's policy had failed.
"They have lost control of the economic situation," he told the BBC.
We are in a state of political shambles
Conservative MP William Cash

From:


http://news.bbc.co.uk/onthisday/hi/dates/stories/september/16/newsid_2519000/2519013.stm

bristol_pilot

It's clearly 'different this time' - it's Labour warning against "talking ourselves into recession".

EdInvestor

Where we are right now is that a credit contraction is being caused by weakness in the banking system. Presumably that will have a similar impact to rates being increased - it doesn't matter so much why funds can't be borrowed, more that they can't be borrowed.

Yes, and that's why there's so much pressure on King to get on the case of supplying funds to the system to keep Libor down.

Interest rates did reach a peak of almost 15%, but it is often forgotton that they were 8-10% to start with whereas now base rate has risen to 5.25% from a starting point (low) of 3.5% so the proportionate effect on monthly mortgage payments is likely to be similar.

Actually not so bad, try doing the arithmetic.:)

Turnbull2000

bristol_pilot wrote: »

Interest rates did reach a peak of almost 15%, but it is often forgotton that they were 8-10% to start with whereas now base rate has risen to 5.25% from a starting point (low) of 3.5% so the proportionate effect on monthly mortgage payments is likely to be similar.

Average rate 5 years prior to 1989 negative growth = 10.45

The peak was 14.87

Average rate 5 years prior to 2008 negative growth = 4.67

Pecentage wise, a rise to 6.65% would be the equivalent today. I think!

bristol_pilot

Pecentage wise, a rise to 6.65% would be the equivalent today.

That's my point really - that we don't need to have 15% interest rates today to have the same effect on house prices. The exact arithmetical equivalent is not the issue.