Negative equity and 15% mortgages: how we survived the 80s and 90s (2024)

Priced out of buying a property in London, freezing in her tiny flat as she couldn’t pay the heating bill, and living hand to mouth. Fiona Maclean’s experience of buying her first home should chime with the challenges facing many new and would-be buyers.

But when Fiona took the keys to her first-ever home The Communards were in the charts, Out Of Africa had cleaned up at the Oscars, and women wore power suits without any sense of irony.

Back in 1986 the landscape was very different for first-timers. Prices were, of course, much lower, banks’ lending criteria considerably more lax, and there were lots of cheap and undiscovered parts of London to go house-hunting in.

A combination of sky-high interest rates and a series of house-price crashes meant it wasn’t all plain sailing for first-time buyers.

But, given enough time, many of those who faced the stomach-lurching rollercoaster of the London property market in the 1980s found that, in the long term, things have a habit of working out — something that those facing an uncertain market and soaring mortgage payments might take some small comfort in.

Like all her friends, Fiona had drifted towards London after graduating, living in a succession of “grubby flatshares”. Her parents were keen for her to buy a property and, after breaking up with a boyfriend, she decided to take their advice.

At the time she was 25, had a job in marketing with a restaurant company, and had saved a “tiny” deposit.

“All I could afford were these minute little studio flats, and I was kind of despairing about how little I was earning,” she says.

Fiona decided to put practicality ahead of job fulfilment and accepted a new, less glamorous job with The AA, based in Basingstoke. Her starting salary was around £7,000 per annum, which seemed like a fortune at the time.

“The firm also gave me a relocation bonus of £2,000 which doubled my deposit,” she says.

Fiona decided to move out of London and honed in on Reading, where her new riches would buy a two-bedroom house. She paid circa £25,000 for a two-up two-down fixer-upper with a leaky roof and a flea infestation.

At the time interest rates were around four per cent, but over the next few months they shot up to around 15 per cent. “My salary was my mortgage, basically,” Fiona says.

“Once I had paid it I had no money left at all. My pipes froze one winter because I couldn’t afford to put on the heating at all.” She found herself stuck in Reading and living hand to mouth.

She signed up for an evening course to do a diploma in marketing, funded by The AA, simply because it meant she would be given a company car and could spend three nights a week studying in Kingston upon Thames, with a free supper thrown in.

Then, at a marketing conference she was offered a new job back in London with a High Street bank. Although she had no real interest in the sector, she was interested in one of the perks — back then banks often gave staff subsidised mortgages, and she was offered a five per cent deal.

She took the job, and in 1990 she sold the Reading flat for £35,000. Armed with the profits, a salary of around £12,000, and that mortgage subsidy, she was able to buy herself a £70,000 flat in Clapham.

At 63, Fiona now lives in a flat in Kennington. She was eventually able to get off the corporate ladder and into a job she loves, becoming the editor of lifestyle website London Unattached (london-unattached.com).

Lucian Cook, director of residential research at Savills, was able to buy his first house a couple of years after leaving university.

A key difference between the first-time buyer (FTB) market today and in the 1980s and 1990s, he says, is that back then it was possible for a twentysomething couple on an average wage to buy a home.

No deposit? No problem — banks often handed out 100 per cent mortgages.

“Buying a first home was not nearly so painful in the 1980s and 1990s,” says Lucian. “Home ownership was much more within reach — prices were lower and lending regulations were far less strict”.

That meant that FTBs didn’t face renting for decades. Nor did they have to surrender the entire family fortune to get on the ladder.

Baby Boomers didn’t have it all their own way back then. Interest rates fluctuated, starting at 16 per cent in 1980 before falling to between five and ten per cent during the 1990s.

However, back then house prices had not yet become tremendously disconnected from wages. A 0.25 per cent rate increase on a property which cost £69,000 — the average property price in London in 1993 — is far less painful than one on a £527,000 average home today.

“Affordability did get very stretched, but not nearly as stretched as it is now,” says Lucian.

The game changer was the burst of rapid house-price growth which occurred in the early 2000s — by 2003 an average London home cost £209,000, which meant a threefold increase in a decade. Wages increased too, but only by around 30 per cent. “The relationship between house prices and earnings changed,” says Lucian.

While getting on the housing ladder is far harder now, and coping with interest-rate hikes more painful, one trauma FTBs are unlikely to experience in 2023 is crippling negative equity.

At the tail end of the last century, buyers regularly found themselves stuck in homes worth far less than they paid for them, often for years.

Although house prices are dipping, Lucian points out that we are not experiencing the kind of dramatic crashes of the 1980s and 1990s.

Debra Stottor knows first-hand how destructive, and scary, negative equity can be.

In 1987 Crouch End wasn’t the chi-chi north London urban village, full of yummy mummies and young professionals, we know today. “It was a bit run down, very bohemian, full of independent shops,” says Debra.

Its down-at-heel appeal, plus its lack of a Tube station, meant it was affordable, so she and her ex-husband were able to buy a one-bedroom flat there for circa £58,000.

Both were sub-editors at the time and earned, between them, a little less than £25,000. In 1987 the Bank of England base rate was hovering at around ten per cent. By 1989 it had hit nearly 15 per cent.

But Debra and her then-husband could afford their interest repayments, thanks to the low cost of the property. “An extra five per cent of £58,000 isn’t that much money,” she says.

Their real problem was that house prices were stagnating. Years passed and the couple waited in vain for the value of their property investment to go up.

They even put off plans of having a family as they knew that their flat couldn’t accommodate two adults plus a baby. “In the end we sold it in 1997 for exactly what we paid for it, after trying to sell it for about five years,” says Debra.

Thankfully, as they had stayed in the flat for a decade, the couple had used that time to build their careers significantly. Although they hadn’t earned any equity, their income was much healthier — enough for them to invest £165,000 in a three-bedroom terrace, also in Crouch End.

They went on to have two children before getting divorced. Debra’s ex-husband bought her out of the house, which is now worth around £1m. She has since relocated to Dorchester in Dorset, where she can live mortgage-free.

Despite their early teething troubles, it would be easy for twentysomethings to envy Debra, a journalist and editor, for being able to get on the property ladder in London at all.

But her children, now aged 22 and 24, who are studying fine art and music respectively, are not going to be so lucky. “Neither of them is going to go and work for a hedge fund,” she says. “I think that both will be back in London by next year, and they will be able to move back in with Dad.

“But we do often joke that it won’t be until we are dead that they will be rich enough to buy places of their own, and that is really not all that funny.”

Dany Griffiths’s first experience of London home-ownership also involved negative equity, which caused so much stress that it scared her off the ladder for decades — a decision she now bitterly regrets.

She was just 21 when she bought her first flat, a one-bedroom in Catford, which cost her £44,000. She was a secretary earning about £14,000, and she raised her circa £2,000 deposit with the help of her parents.

Dany knows now that she was lucky. The cheapest one-bedroom flat currently on sale in Catford is listed for £160,000. In today’s money, Dany’s salary is worth £35,000, which would command a mortgage of around £140,000, leaving her £20,000 adrift.

House prices were falling when Dany bought her flat. “It had originally been on sale for £56,000, but they couldn’t sell it, so they dropped the price and I thought: ‘Yippee, I am buying at the perfect time’,” she says. Unfortunately, she was wrong. Prices continued to fall and soon her flat was valued at £37,000.

“I knuckled down and lived there for around ten years,” she says. “I was in negative equity for a long time.”

After selling the flat Dany, who is now 55 and runs a coach training academy, switched to renting. She didn’t have the confidence to return to the housing market again until 2005, when she and her boyfriend bought a modest three-bedroom house near Sidcup, where they still live. They married the next year and now have a 16-year-old son.

Looking back, Dany regrets stepping off the ladder. In hindsight she should have hung on to that Catford flat and rented it out. “I know it’s not much of a sob story, as I have a three-bedroom house now, but I would have been sitting pretty if I’d kept the flat, and I am not.”

Her real sympathies, though, are with the generation priced off the ladder completely. “It is so frustrating that they pay rent, proving how much they can repay, but they can’t borrow that amount so can’t afford to buy,” she says.