Mortgages can be traced back to the 12th Century, originating as a loan given, with land or property held or transferred in security until the debt was repaid. These loans became more widespread and more readily obtainable as the world was discovered around us.
In the early days, you’d need a 50% deposit, and the lender usually wanted their money back within five years—a highly unlikely option for buyers in the 21st Century. Developing over the centuries, the mortgage we know today is when a borrower holds the title to the property, but the lender can sell it to recover their money if the debt goes unpaid. There are over 200 separate financial organisations supplying mortgages in the UK.
Popularity of the mortgage resurfaced when building societies were created in the 19th Century. Purchasing a house was limited to the affluent until the Industrial Revolution, when ‘ordinary’ people flocked to cities for factory work. Choices were limited to low-quality housing, in often slum-like conditions.
In the 20th Century, the vast majority of British workers rented their homes. However, landlords increased rents out of line with wages. In 1919, the Addison Act was introduced to provide decent housing for soldiers who’d fought in WWI. Over a million houses were built, with half of these becoming council houses.
During the 1930s, the middle class were taking advantage of mortgage availability, low interest rates, and newly built properties in the suburbs. Home ownership had become a reality for nearly a third of the population before WWII halted investment in housing, and also depleted liveable accommodation due to bombings.
Fast forward to the 1960s, when families started to benefit from dual incomes from both husband and wife, and interest rates were affordable. Government pushed property ownership by lending money to building societies to provide mortgages.
By the 1980s, owning your own home was aided by incentives such as MIRAS, which gave tax relief on the first £30,000 of any qualifying mortgage, and Right to Buy, which offered discounts of up to 60% with no down payments. These were opportunities not to be missed, especially as mortgage repayments were often less than rent, as is generally still the case today. This is when banks really entered the mortgage market.
It was around 1990 when homeowners represented two thirds of the population, both with or without a mortgage. Deregulation of the financial sector led to different types of mortgages, to suit different circumstances. These were advertised by savvy banks who continued to increase their share of the market. Interest-only mortgages were advertised by banks as a great way to benefit from the property boom, with longer-term benefits.
With a drop in house prices in the early 2000s came a knock-on effect on mortgages. Stricter criteria was put in place, and supply was low. Buy-to-let mortgages were prevalent with the rental accommodation required for those who couldn’t afford or didn’t fit the criteria to buy.
Across the globe, in Islamic Sharia law, payment or receipt of interest is actually prohibited, meaning Muslims can’t use conventional mortgages. Instead, lender and borrower work in a sort of shared capital partnership. In another variation of an Islamic mortgage, the bank acts as a landlord, with the homebuyer paying rent plus a contribution towards purchasing the property—with similarities to the Shared Ownership scheme in the UK.
The mortgage industry in the United States is a major financial sector, which has in turn been the centre of several major financial crises. Government-sponsored programmes—known as Ginnie Mae, Fannie Mae and Freddie Mac—have been put in place in order to encourage home ownership, as well as foster lending and construction. Common fixed terms are of five years and under in the UK, compared to the US, who are most commonly on 30-year fixed terms.
Today, with prices at a high and interest rates incrementally increasing at pace, this hasn’t dampened prospective purchasers’ spirit. We’re seeing strong and steady levels of purchasing, across all rungs of the ladder.
To discuss your plans for a move, to chat about investment options, or for advice on the property market, contact us on 01525 40 22 66 or email ampthill@orchards.co.uk
