Fall of the Berlin Wall

With the fall of the Berlin wall marking the beginning of globalisation we saw the world boom. It wasn’t just the Berlin Wall that fell, walls were falling everywhere, metaphorically speaking, deregulation, the expanding internet and falling tax rates, all contributed to confidence being at an all-time high. It seemed to most people that it would never end with the government declaring it had finally put an end to boom and bust.

We saw increasingly creative mortgage products come on the market such as self-certification, just tell us what you earn, and we will believe you!

Residential mortgages where the banks were lending more than the property was worth sometimes up to 120% of the home value. You could buy a home for £100,00 and get £20,000 cash back.

Buy a property on bridging finance for £80,000, then have it revalued at £100,000 and then take out a mortgage for £85,000 giving you an instant profit of £5,000 and a theoretical equity of £15,000 all in the same day.

I remember applying to re-finance two properties I owned to raise capital for another project when the bank suggested that I take out the entire debit on one property, so I would have the second property free and clear of any debt and the bank did not want security over the second property.

It wasn’t just happening here it was happening the world over. It was built on the belief that the loans would all be paid and that asset prices would continue to rise.
Eventually it occurred to someone that perhaps the loans would not be repaid and it all started to come crashing down. Why it all fell apart is more complex than this, but I won’t go off on a tangent to explain this further.

I heard people in the property industry predicting that this was just a blip and that things would return to normal. I heard others say that the property market would never recover like they had told my grandfather in the 1930’s.

No one seemed to know what was going on. They did not understand the cycle, which I will cover in the training on property cycles, but stay with me just now as you need to understand where we are now and what is really happening.

We had the party and now we had the hangover. The party was the expansion of globalisation which was a good thing, but like at a party we continued to consume to excess. The hangover is the backlash that was predicted by Thomas Freedman in his excellent book “The Lexus and the Olive Tree” published in 1999.

In the book he talks about the rise of globalisation which he describes as a good thing, but if we leave people behind and destroy cultures we can expect a backlash. Reading this book will help you understand much of what is happening in the world right now and I highly recommend you do.