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The UK Housing Market: A Place of Your Own?

Are conditions today any different from those that created the house price crash of the 1990s?

In a word, yes! The housing market, the economy, interest rates, unemployment are all completely different. That's why analysts believe a cooling of the market is likelier than a deep freeze. In the late 1980s, a rapid rise in the price of houses in the UK was reversed during the early 1990s. A combination of an economic recession, rising unemployment and rising interest rates left many home buyers with high mortgage repayments.

The market value of some people's houses fell below the amount of their mortgage. When home owners cannot repay their mortgages by selling their properties, they fall into what is known as 'negative equity'. Unable to meet monthly mortgage payments, or to sell and move to a cheaper house, many people defaulted on their loans and repossessions soared. Research from the Joseph Rowntree Organisation indicates that in the 1990s, almost 500,000 households (the majority containing dependent children), covering almost one and a half million adults and children, lost their mortgaged homes.

The situation in 2004 is radically different as can be seen in last summer's Repossession Risk Review [PDF, 77K], published by the Council for Mortgage Lenders. Of course, this data was taken when the housing market was still booming, but the general economic conditions are still favourable. Very low unemployment, low CPI inflation, high levels of employment and, crucially, interest rates at 4.75% which many believe may have peaked. Short of a massive shock, the market seems ready for a 'soft landing', rather than an abrupt crash.

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