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27th May 2022 – Written by Ade

70 years in the
mortgage market

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With the Queen’s Platinum Jubilee fast approaching, now seems a good time to look back at the last 70 years and consider the UK’s mortgage market and the changes we’ve seen.

So, let’s take a trip back to May and June of 1952, a time that saw the maiden flight of the De Havilland Comet, the world’s first passenger jet; Newcastle United win the FA Cup for a record fifth time; and the introduction of a one shilling charge for NHS prescriptions.

In 1952 Queen Elizabeth II succeeded to the throne while in Kenya, making her the first sovereign in over 200 years to accede while abroad. It was also the year Nationwide (then called the Co-operative Permanent Building Society) first produced its house price index which tells us the price of a typical UK home in that year was £1,891. Fast forward to the first quarter of 2022 and that figure is now £260,771[1], a mighty 13,691% increase and more than eight times average earnings[2].

House prices remained steady throughout the mid-1950s although Q4 of 1959 was the first time the UK had seen a 5% annual increase. That started a run of annual increases which lasted up until 1990[3] and also included a rise of 32% in 1988/89.

The mortgage interest rate back in 1952 was 4.5%[4]. This climbed steadily and in the late seventies hit 15% (with a base rate high of 17%) before taking a dip through the eighties only to peak again at 15.25% in October 1990. From then on, the rate made a steady decline until we saw it bottom out at 0.25% during the COVID-19 pandemic.

Key drivers to rising house prices

So, what have been the key drivers to house prices over the last 70 years? Two things – inflation and the entry of banks into the mortgage market.

Inflation stayed steady during the 50s and 60s but by the mid-70s had hit an annual rate of 26.9%[5]. Owning property was deemed to be a benefit of this, as it was a large physical asset you could borrow money to possess.

At the same time incomes were increasing quickly. Although high-interest rates and inflation put more pressure on household resources, buying a house with a mortgage increased the value of the asset in real terms whilst the loans value decreased in real terms. Higher inflation meant a boost for the home’s value and less value to the debt on it.

In the early 1980s, banks entered the mortgage market bringing with them a major increase in funding and innovative interest rate options creating potential mortgages for those who would previously have struggled to get one.

Around this time Mortgage Brain began as a small system developed for the wife of the founder, who was a mortgage adviser, and the first sourcing system for advisers in the UK mortgage market was born.

From these humble beginnings, the company has grown over the years to be the expert provider of end-to-end mortgage technology for mortgage advisers.

More recently the stamp duty holiday during the COVID-19 pandemic and good old supply and demand have helped bolster house prices.

Housing demand is exceeding supply, there is simply a lack of housing on the market, and of course, that means it’s a seller’s market with rising prices. UK house prices were on average 9.6% higher in the year to January 2022[6].

The necessity to work remotely during the pandemic and the fact that many workers still want to do that has brought the realisation that they can escape to the country and find more space for homeworking, rather than be tied to inner-city life and a daily commute. This move pushes up prices in the regions with a new form of demand. 24% of UK residents are considering moving to more rural areas meaning short supply and property going for well above the asking price in many situations

This change in the way people are able to work remotely has been made possible with technology like Sourcing Brain that gives mortgage advisers the flexibility to work from home, in the office, or at the customer’s home.

Housing stock

The 1950s, 60s, and 70s were a time for rebuilding. Firstly, to replace the half a million homes destroyed or made uninhabitable during the war[8] and latterly between 1955 and 1980 with the trend for slum clearances. The public sector led the way with this. 95,000 homes were torn down in 1971[9]. The private sector has been at the forefront of building new houses for the last few decades.

Temporary prefabricated homes were built to house 125,000 homeless and bombed-out families alongside 450,000 new homes in the decade after the war. The 60s and 70s saw more new homes built than any other time with 425,000 in 1968 alone[10]. These included tower blocks built by local authorities as a quick solution to the ongoing housing shortage.

The 80s and 90s proved to be a rollercoaster ride for property owners. The right to buy scheme launched as part of the 1980 Housing Act and by the end of 90s 1.9 million council homes had been sold. The affluent eighties gave way to the negative nineties when the bubble burst after economic success had driven up house prices. In 1992 alone 75,000 houses were repossessed.

Today we are facing another housing crisis. The ten years from 2010 saw on average 164,976 new builds completed a year, that’s a long way from the Government’s target of 300,000 homes per year by the mid-2020s.

Shrinking Houses

How have our new builds changed over the years? Apart from materials used to build a property, size has very much changed. If we look back at the 1950s, houses then offered very generous sizes[11]:

  • The average living room was 22.03m2
  • The average master bedroom was 14.49m2
  • The average kitchen was 14.05m2
  • The average home had 3.16 bedrooms

The 70s offered even more with the biggest houses being built during this period:

  • The average living room was 24.89m2
  • The average master bedroom was 14.71m2
  • The average kitchen was 14.96m2
  • The average home had 3.53 bedrooms

Compare these sizes to new builds today and you see a considerable drop in volume with homes built from 2010 onwards being more than 4m2 smaller than the previous decade.

  • The average living room is 17.09m2
  • The average master bedroom is 13.37m2
  • The average kitchen is 13.44m2
  • The average home has 2.95 bedrooms

So clearly a lot has changed over the last 70 years that Queen Elizabeth II has been on the throne.  The good news for her Majesty is that back in 1952 Buckingham Palace was estimated to have been worth £11 million[12]. Today that figure has risen to around £3.9 billion[13].

The mortgage industry has seen a recent boom in the adoption of technology, with the pandemic moving us towards more digital processes[14] And, the good news for mortgage advisers is time-saving solutions from Mortgage Brain shorten and digitalise the end-to-end mortgage journey, which results in a better outcome for their customers. Experience our cloud-based mortgage tools for yourself by signing-up for a free 30-day trial and learn more about Sourcing BrainCriteria BrainAffordability Brain, and Submissions Brain.

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