The credit crunch 10 years on: How Liverpool’s housing market has changed
Almost 10 years on from the start of the credit crunch Your Move looks back at how Liverpool – and the housing industry – have changed.
Words by Christine Toner
A decade ago Vince Cable may have been warning of economic collapse but for the rest of the housing market things were looking pretty good. Buy-to-let was booming, first-time buyers could purchase a home with no deposit and very little proof of income, and house prices were on the up. Then the run on Northern Rock happened, signifying the start of the worst few years for the property and financial markets in decades.
The banks all but shut up shop, first-time buyers were left out in the cold and house sales ground to a halt.
After a slow and steady recovery, where does the Liverpool City Region’s housing market stand now and how has the home buying process changed?
Understandably, since the mortgage market was brought to its knees by the economic downfall – the catalyst of which was homeowners in the US being offered mortgages they couldn’t afford – it was clear to everyone that changes needed to be made.
Several reams of new regulation have come into play since 2007, all of which focus heavily on borrower affordability.
Today lenders give greater focus to a borrower’s ability to afford a mortgage – not just as things stand now but also in the event interest rates rise within the next five years.
The rise and fall… and rise of city centre living
Build it and they will come, so they say. Unless, that is, you build lots and lots of it without checking whether demand is there or keeping abreast of any market downturns.
The city centre living phenomenon was just starting to take off in Liverpool before the crunch hit. When buyers retreated – and lenders took a dislike to new build properties as they depreciate in value as soon as they’re bought – many of them were left empty.
What’s more of course, many developers who were reliant on bank funding to complete the projects were forced to stop work. But no other area of the housing market has recovered quite like the city centre property market has.
New developments are now sprouting up all over central Liverpool and, while some target buyers, a number of developers have tapped into the niche purpose-built private rented sector and are reaping the rewards.
“Ten years later the city centre is a totally different place. Liverpool has now become one of the most popular places to live in the North West.”
The region’s rental market
“The market has changed dramatically since the crash when it was not unusual for people to buy property and then expect it to increase in value by £20,000-£30,000 within just six months before selling,” explains Ian Taylor, lettings manager at Reeds Rains in Liverpool.
“In reality many, instead, saw property values waiver and were forced to keep their property and become landlords to help them pay for it.
“This, in turn, saw a huge rise in the availability of city centre apartments to rent which led students to migrate from areas such as Smithdown Road to the centre of Liverpool.
“In the following three to four years rents then rose from £600-650 per calendar month for a two-bedroom flat to the £800-850 levels.
“Now, however, rents appear to have levelled out and, with the value of their property now much higher and often worth £5,000–£10,000 more than similar new build apartments, those same landlords can now consider selling in a reinvigorated market or continue to generate a rental income.”
Supply and demand
“In 2007 we had just witnessed the largest city centre building boom ever when thousands of apartments were built to satisfy the huge appetite of investors ‘betting’ on the urban residential boom,” says Alan Bevan, managing director of estate agent City Residential.
“Unfortunately many of these investors could have been better described as ‘speculators’ putting down 10% deposits in the hope/aim of ‘flipping’ their contracts for a profit.
“As the boom ended and mortgage lenders refused to offer finance on overpriced apartments the market literally fell off the face of a cliff. The glut of apartments that was built during this period (probably 10 years’ worth in three years) also resulted in a huge oversupply of stock which was never going be filled even when the city was beginning to attract more residents.
“Ten years later the city centre is a totally different place from 2007. Whilst then the city was still in its early stages of the city living boom, Liverpool has now become one of the most popular places to live in the North West.
“Our only concern as highlighted in our latest quarterly report is to ensure that we build what the incoming tenants and buyers want from their residential accommodation, not what ‘stacks up’ best for the developer.
“We run the risk of not building enough of the right type of product and too much of the wrong type.”
“Many people saw property values waiver and were forced to keep their property and become landlords to help them pay for it.”
Dealing with deposits
Back in the halcyon pre credit crunch days it was possible to get a mortgage with no deposit whatsoever. Indeed, you could even borrow more than you needed to buy the property.
The 110% mortgage – so called because it offered to the borrower 100% of the property’s purchase price plus 10% extra – was famously brought to market in 2002 by the now defunct lender Bristol & West.
Then the crash came and the issue of borrowers taking on more debt than they could actually afford to repay became a major talking point.
Bristol & West was closed by its parent company Bank of Ireland after suffering massive losses and the 110% mortgage was no more. Neither was the 100% mortgage.
In fact, for many years getting any mortgage without at least a 15% deposit would prove very difficult.
In recent years we’ve seen high LTV (loan-to-value) mortgages start to return to the market but it’s safe to say we’re unlikely to see a return to the days of the 110% mortgage ever again.
Buy-to-let boom and bust
Before the downturn the buy-to-let business seemed an easy money game. House prices were rising and credit was readily available so buying a property and renting it out for a while before selling it on at a profit seemed a no brainer. But the industry was one of the hardest hit by the credit crunch.
Buy-to-let was deemed riskier than residential lending so banks were not too keen to lend. Even specialist lenders who focused primarily on providing loans for landlords retreated.
Yet 10 years on the market has bounced back and, while there are now numerous new challenges to face – including the Stamp Duty surcharge and changes to landlord tax relief – Liverpool was recently named the UK’s best buy-to-let spot by mortgage brokers Private Finance.