There was a slight slowdown in 2005 which prompted a few to sell and start renting. In hindsight, they were the lucky ones.

Easy money stepped in and reflated things and now we see the consequences

And the conduits for that easy money in the latter phase of the bubble often involved the most vulnerable of people – sub-prime and NINJAs. Due to the people interest story, the media picked up on this first, but I feel it is BTL where the major falls will occur.

Also, much of the price rises in the last two years or more of the bubble were completely scandalous. Builders marked up the houses/flats but then enticed buyers by offering it to them as a discount in the form of a downpayment to their mortage provider. In effect the property developers were paying this markup to themselves. Often, an 85% mortgage was in reality a 100% mortgage, and this price distortion was also reflected in the Land Registry duping would be buyers into believing that the boom was still on.

Easy money stepped in and reflated things and now we see the consequences – a much harder fall for the Southeast. Could the MPC have done anything about this?

It’s hard to say, because the Yen and Dollar carry trade buoyed London and te South East along with the financial sector.

It is sad what is happening but good for renters like Alice at UK Bubble

That is indeed true mostly of London properties and of south west England where many of the square mile folk bought country homes.

There is also the global margin call phenomena spreading to the buy-to-let sector. Where I live I’ve observed all the “FOR SALE” signs being replaced with “TO LET” signs. The cottage industry of amateur buy-to-let investors will rapidly unwind as equity value falls, and as oversupply and falling rents fail to cover even the interest payments on these BTL mortgages.

Furthermore, unless the credit market unfreezes in earnest, the LIBOR against which mortgage interest rates are set will continue to resist declines in the Bank of England’s interest rates. This will keep many first time buyers (who also have their salaries to worry about) away in spite of plummeting prices.

And of course this will have a direct effect on the high street. Just like Americans who used their home equity as an ATM, many Brits were doing the same through remortgaging.