Opinion: Don't believe the house hype, and don't buy in unless you can truly afford it
The housing bubble burst in the UK and Ireland in 2008. Stuff reporter John Edens, who lives in Wellington and hails from Northern Ireland, bought an entry-level house amid the hype and gives an insider's account of the unprecedented conditions that led to one of the worst housing crashes in the developed world.
The moral of this story is: Don't believe the hype.
What happened was horrible, really, and only understandable in hindsight.
A perfect storm of market forces, greed, short-sightedness, and convention.
The old drive to get on the property ladder and hang in there whatever it takes. That, and a 100 per cent mortgage.
A what?! Yes, a 100 per cent mortgage.
That's where a bank looks at your finances, ignores the meagre wages of someone in their first real job in their mid-20s and hands you the entire loan to buy a house without a deposit.
It seemed like a good idea at the time.
In my case, it was a 30-year 100 per cent mortgage seven times my annual income of slightly less than £11,000 (about $27,000 back then). Yes, really.
The year was 2005 and the housing market in Northern Ireland was booming.
You may detect a note of bitterness. Or embarrassment. And you'd be right, because I couldn't afford it and I didn't sell up.
I could have walked away with a profit, as prices had risen in Northern Ireland, on average, by 48 per cent by 2006.
But I didn't sell. I had a job and whatnot and I was a homeowner for the first time. What was I going to do? Move in with my parents, count my money, and start again?
Let's rewind to the boom times, when prices in the UK and Ireland went up and up and up from around 2000 to 2007.
People were sleeping outside real estate agencies to grab a first-release application pack. Housing was hardly ever out of the news and advertising for housing, loans, and "buy-to-let" schemes was everywhere.
And what happened? I couldn't remotely afford it. Looking back, it was a hellish existence. I was, to put it mildly, overstretched. Then came the crash.
I had two jobs by 2007. A 37.5 hour a week job as a reporter with a regional weekly newspaper, a spot of freelancing, and a part-time weekend job selling booze.
I didn't have any spare money. I wasn't saving. I was working six, sometimes seven, days a weeks to make ends meet. Sometimes, I used a credit card to pay the mortgage (I imagine some people gasping at that).
I gasp at that.
I got a second mortgage, based on a drive-by valuation (he literally looked at the house from the outside) by a valuer, who cheerfully marked down the expected increase in the house sale price and sent the paperwork to the bank. This paved the way for a mortgage advance and, just like that, I had £10,000.
Some of that money was given back to the bank in mortgage payments and it was used to clear credit card debts, credit initially used to pay the mortgage.
Oh, and the mortgage for the first few years was interest-only, so I wasn't even touching the capital.
It was stressful, and exhausting.
I'll always remember the agent saying he was thinking about buying where I was because it was a sure bet. He wasn't thinking that, though. It's the oldest trick in the book.
I was blind to any warning signs (most people were), suckered by a rapacious lending environment. I was oblivious to the madness of deposit-free lending, totally caught up in the hype and fully hoodwinked by the idea of being a property owner, the great attainable western dream. An obsession in the UK and Ireland, as much as it is here in New Zealand.
The one thing people who don't have much money or assets can "invest" in.
These days, I cringe when I think about it. It is very difficult, if not impossible, to see a coming crash for what it is.
Within a year of the 2007 peak, prices had plummeted, sales had ground to a halt, negative equity was rearing its ugly head and lots of people were out of pocket. The house I bought was a terrace (think century old inter-war red brick housing like Coronation St) in a not very nice part of the capital, Belfast.
Some people made a lot of money, quickly buying and selling. Others, particularly first-time buyers like me who over-stretched, and people who bought at the peak, ended up in negative equity.
At the higher end of the market, there were staggering gains and losses.
So if this sounds like a warning, it is.
Don't buy a house unless you can really, truly, afford it.
In New Zealand, which has many similarities to the UK and Ireland, we all know house prices have rocketed upwards.
It's hard, though, to see the recession, the bubble, or the coming crash, for what it is when banks are lending, you've become a homeowner (horns toot, angels sing!) and all is economically rosy.
Somehow, with white-knuckle stubbornness, family support, and not least moving to the other side of the world, I managed to hold on to the house. It was bought before prices reached their insane peak, so it could have been worse. I wasn't so much burned by the crash and the recession as singed.
It's still worth less than what I paid for it, though, and Northern Ireland's long, slow recovery continues to lag behind the rest of the UK and Ireland.