Lawns were being cut, dogs walked and deckchairs unfolded and the postwoman was saying cheery hellos to customers at Knipe Point, overlooking Cayton Bay near Scarborough.

But her round was about to become a couple of addresses shorter as a mechanical digger warmed up to tear down a pair of semi-detached bungalows left teetering over a 40ft drop caused by a landslip.

The demolition team began ripping apart the first property at 10.30am but were forced to call a halt after discovering some suspect material. An expert was called expert to examine it.

The delay gave residents pause to reflect how it had all seemed so different last September, when the row of 16 homes was still separated from the cliff edge by more than 20 feet of scrubland. Then the ground sank 40 feet and Cayton Woods below was reduced to a quagmire of quicksand, standing water, and sagging trees.

It was not the National Trust, owner of Cayton Woods, which first noticed something was wrong, it was a gardener. Martin Slater was mowing a lawn last September when he noticed a cherry tree was missing.

The next moment the lawnmower scalped the grass where the ground had sunk and his foot slipped into a huge crack.

Watching the demolition yesterday he said: "I knew something was wrong because the woods used to be as dry as a bone. But I never thought it would come to this and I still can't believe it."

For retired engineering company chief Kevin Lloyd, 76, it was time to say goodbye to the two-bedroom holiday bungalow which had been a joy for him and his wife Mary, 74, for 17 years. It may be next on the demolition list.

The couple bought the property without stepping across the threshold, hooked immediately on the sea view, and hoped to enjoy their weekend retreat for the rest of their retirement.

Mr Lloyd said: "We were offered £150,000 for it last year. When we first came it was a morning very like this, sunny with a hard frost. There were a couple of pheasants outside and a squirrel on the fence. We did not even go in. We just said we would have it."

But at least they still have a home to go to in Redcar. Neighbour Tony Charlesworth, 74, sold his house in Cottingham and bought his £150,000 bungalow 15 months ago to be closer to his children in Scarborough.

Mr Charlesworth, a retired race track bookie said: "I could have bought one in the middle but waited for one with the sun and a view. It's such a nice place to live – private, no vandalism, no one passing through, no yobs, and everyone is very friendly. Now I don't know where I'll end up."

The snag is that although properties were changing hands for up to £180,000 last year, insurers are now only offering £80,000 rebuild costs. But there are no more plots on Knipe Point, which is crumbling anyway, and much of the equity is tied up in the location.

Although Knipe Point has suffered small landslips for years there seemed nothing seriously wrong with the site until torrents of water began to run down from the higher ground over winter, devastating Cayton Woods and causing Mr Charlesworth's back garden to sink a foot every day.

No one knows where the water has come from and everyone agrees something should be done to defend the remaining 56 homes including 50 permanent residents. The question is what.

The secretary of the Knipe Point Owners Association, Mike Turner, said: "Talk to the National Trust about digging a channel through the woods to drain the water away and they'll say they have to talk to English Nature.

"It seems everyone's bothered more about the great crested newts than they are about peoples' homes falling down and if things carry on the woods will die anyway and all we will be left with is a wilderness and a mangled mass of dead trees."