"It's only when the tide goes out that you learn who's been swimming naked." - Warren Buffet, American financier

Twice a day the tide from the North Sea flows into the Thames, raising the water level at Hammersmith by five metres. In spring and autumn, the river threatens to flood. When it does flood the roads and pathways beside it, a motorist, having parked, can return two or three hours later to find his car half under water. Mostly, the river doesn’t flood because it is under control. Twenty miles downstream, beyond the banks of the City of London, the Thames Barrier forms a dam that holds back the high spring tides.

The tide flows in

In the affairs of Hammersmith, a tide of debt has flowed strongly these past ten years. Barriers to prosperity removed, easy money has poured in. The banks gave it away. Want to borrow for six months free of interest? Here, have this credit card, and this. Want a mortgage for £150,000 on a total income before tax of £30,000? No problem. Want to borrow 100%. Please, have it now and on top we will lend you £5,000 cash so that you can buy a few sticks of furniture. Year by year, until 2007, the price (but not the value) of property rose by ten per cent or more. Over ten years, an ordinary four-bedroom house in Hammersmith went up from £225,000 to £1.2 million. With the bubble in house prices, people felt rich. Many of them borrowed money. They re-mortgaged and spent. They ran up debt on their credit cards. They bought larger cars. When they voted, they rejected the Labour party, and Hammersmith, long a left-wing fortress where the red flag flew over the town hall, turned Conservative. On holiday, they moved from Spain and Florida to the Seychelles and South America. Local pubs became posh gastropubs, where a traditional plate of sausages and mashed potatoes trebled in price from £3.50 to £10.50. The dislocation between price and value became extreme everywhere, but nowhere more extreme than in a local nightclub down the road off Kensington High Street where you could pay, and the occasional idiot with more money than sense did pay, up to £18,000 for a monster bottle of champagne.

The tide flows out

Inevitably, the tides of the Thames flow back to the sea. When they do, they reveal a wasteland of mud and stones, of builder’s waste and abandoned shopping trolleys, the corpses of unwanted pets and, sometimes, unwanted people.

The flood of phantom money has also retreated, six miles back down the river and into the City of London banks whence it came, and there evaporated, leaving many local property-owners high and dry. Easy money has turned into hard debt. Those who borrowed five times their annual income in order to buy a one-bedroom flat now find that it has lost 20% of its purchase price. The expectation is that in general London property prices will decline by 40 to 50%: the £1.2 million home will sell for £600,000. That’s an awful lot of real money to lose. Often, a house or flat will be worth less than the money borrowed to buy it, a dead loss for both householder and bank. In the UK, this personal economic misery is called “being in negative equity”; in the USA, it is more clearly described as “being under water”.

No one is buying houses any more. The estate agents (US realtors) are empty of customers. In the good times they expanded and gave themselves large executive desks. The other day, I counted a dozen desks through the window of one of the largest, three of them occupied. This collapse in the property bubble lies at the heart of the depression. Only when property prices begin to rise will the economy recover. In the overpopulated UK, demand for houses and flats has always been greater than the supply, especially in London and the south-east of the country. Borrowing far more than they can afford, young professional couples would buy a small two-bedroom flat, “to get their foot on the first rung of the housing ladder”, as it is called. The numbers are depressing: in 1995, in Hammersmith, a two-room flat would be about £70,000; by 2002, it had doubled to perhaps £140,000; and by 2006, at the height of the bubble, it would be £240,000 or more. With a combined income of, say £60,000, and with the bubble-blowing banks asking for only a 5% deposit and 5% interest on the loan, the nesting couple could easily buy the flat. But now prices are expected to fall to 2002 levels. If they sell the flat at those prices, they will have a debt to the bank of going on for £100,000, almost twice their combined income. For many couples buying their home in the past six years, the choice is grim: stay in the flat or declare personal bankruptcy. They had better love each other dearly.

This scenario is being acted out many times over. It is not only property debt. The average household has, in addition to a mortgage, about £10,000 in unsecured debt on credit cards, store cards and so on. All in all, the total owed by individuals is around £1.5 trillion, greater than the UK’s GDP.

Signs of the times

The first sign that the tide of prosperity was ebbing was an increase in the number of street advertisements offering offices to let. Then there were the cars parked with hand-written “for sale” notices taped to their side and rear windows. The main visible change came a year ago when estate agents’ boards sprang up like mushrooms in street after street offering flats and houses for sale and to rent. They are mostly still there. The agents themselves are interested only in realistic prices: that is, where the seller is willing to reduce his price by 20% and a sale possible. One change that worried me was the sudden politeness of the managers at my local bank: the vaults, I thought, must be very empty.

Local shops have been closing down, especially those selling household stuff like furniture, curtains and carpets. What will remain are the supermarkets (Tesco and Sainsbury), the chemists (Boots) and the charity shops (Oxfam, Amnesty, Cancer Research) of which Hammersmith, at the frontier between affluence and poverty, has many. No restaurants, as far as I have noticed, have yet closed down, but most of them are in the evening depressingly empty. They will mostly hang on, I suppose, supported by the cheap lunches they offer to the office crowd and by hopes that a warm spring will bring better times. The local auctioneers have seen the return of the property vultures, small-scale property speculators who buy houses at auction for a fraction of the price paid two or three years ago. Thus, there are more vultures, more beggars in the street, more criminals, and in the next year more bodies to be found in the river as the tide goes out.

For now, the view from Hammersmith Bridge is very bleak indeed. How does the view look from where you are? Can you describe it in English?

Peter Cant