Are We Heading for Bust?

Almost every property investor or individual involved in the property market
has considered the danger of a property price crash. Although opinions differ
on the likelihood that this crash will happen, the real key to success for
the forward thinking investor is to have an accurate idea of what causes a
property crash and then to protect your position - before the rest of the market
follows you!

The last property crash occurred in 1990. What were the key factors that drove
this crash and are we in the middle of a set of circumstances that will see
history repeating itself?

Before the crash in 1990, there were seven years of continued price increases
in the property market, the same as we have witnessed in the last seven years.
Margaret Thatcher lost power as the property market crashed, with many economists
blaming the political uncertainty for the crash in the first place. Of course,
there is thought to be a degree of political uncertainty surrounding Tony Blair’s
situation, currently.

So, with these sorts of comparisons, it is unsurprising that many people are
predicting another price crash very soon.

But, what the doom and gloom merchants have failed to note with their calculations
is that there are some fundamental differences between 2007 and 1990, which
should prevent a repeat performance of this fateful period in property history.

Inflation does not pose such a large threat to property investment in the
modern market. Vitally, the internet has meant that the economy is much more
efficient and that cost reductions and increased competition mean that we are
less susceptible to inflation.

As a nation, we are much more affluent and have much more access to financing.
Getting hold of finance from mainstream banks as well as specialist lenders
has become increasingly easy. During the period immediately before the 1990
crash, purchasers could only borrow three times their salary; today it is possible
to borrow as much as seven times one’s salary, meaning that it will take
a lot more to price people out of the property market. Furthermore, earnings
remain high and consumer confidence is sufficiently well established to deal,
at least, with a consistent price increase across the property market.

Today’s buy to let market is much more influential than during the 1980s.
High net worth individuals and ever increasing city bonuses, as well as a poorly
performing pension schemes, have ensured that the buy to let market remains
healthy so that the bottom of the market does not falter and drop to the extent
that was commonly seen during the 1990 crash.

Not only is the buy to let market holding up the bottom end of the property
market, but the lenders are also becoming much more competitive in an attempt
to ensure that this market remains extremely buoyant. Building societies and
high street banks are keen to offer a range of mortgages, for both investors
and personal buyers, in order to keep the market very much alive. With lenders
prepared to advance as much as seven times the annual salary of the borrower,
the property market can seemingly continue to rise as the money is there to
back it up.

Despite all of the possible warning signs, it seems that there are some key
differences between the 1990s and 2007. This means that a much feared crash
is highly unlikely to strike, at least for the time being!

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