In the days and weeks since Margaret Thatcher died, there has been a lot of mulling over the changes her government introduced during its decade in power.
To me, one of the activities that’s been transformed beyond recognition over the last 30 years is what it’s like to get a mortgage.
From the demise of double-digit interest rates to the rise of comparison services, here’s my take on the main differences between now and then.
You might have had to ‘queue’ for a mortgage…
Believe it or not, in the 1970s building societies operated a kind of ‘cartel’ where their national association met periodically to ‘recommended’ the interest rates to be paid on savings and charged on mortgages. Although it stopped just short of outright price fixing, compliance with these recommendations was pretty much universal. It’s supposed that the main reason this was tolerated by the government was because it helped keep a lid on the mortgage rate while so much else was spiralling out of control.
Unfortunately the main side effect of this was that because it also kept a lid on savings rates, the building societies couldn’t do much to attract increased deposits that were necessary to fund their lending in those days. So with mortgage demand exceeding supply, queuing became the norm: you might have had to put your name down for a mortgage some time ahead of actually needing one.
You could only borrow 2.5 times your salary
That wasn’t an absolute rule, but it certainly seemed to be the rule of thumb. With mortgages fairly scarce at the end of the 1970s (see above), there was no pressure on lenders to be generous. The few who persuaded their building society or bank to lend them more than two and a half times salary for their mortgage were typically the most blue chip of applicants.
Meanwhile for the rest of us, the positive side effect of this lending ‘ceiling’ was that it acted as a brake on house price growth — something that was conspicuously missing in the mid-2000s as lenders vied to offer 4x and 5x salary multiples to aspiring homebuyers.
You used to get tax relief on mortgage interest…
…but this has been gradually taken away. Mortgage Interest Tax Relief was part of the personal finance landscape until Nigel Lawson began dismantling it in the late 1980s, paving the way for its eventual withdrawal. It might have been worth a few thousand to the average homebuyer at the end of that decade.
Mind you, we perhaps don’t have quite the same need today as borrowers did back then. See the next point for details…
Interest rates were much, much higher
The housing market started growing rapidly in the early to mid-1980s despite what would look like terrifying interest rates for you & me today. Thirty years ago, at the beginning of 1983, the Bank of England base rate stood at 11%, meaning a typical mortgage might be offered at around 14 or 15 per cent interest per annum.
Think that’s high? In the late 1980s as the housing market reached its peak, inflation kept provoking further interest rate increases. The base rate reached nearly 15% and stood at that level for a whole year from October 1989 to October 1990. It wasn’t until 1992, as Britain was forced out of the European exchange rate mechanism, that interest rates returned to single digit percentages.
A 0.5% base rate (and fixed rate mortgages under 3 per cent) would have been unthinkable thirty years ago!
There was no such thing as a ‘fixed rate mortgage’
In fact come to think of it my last statement would have been unthinkable anyway, because fixed rate mortgages were very much a 1990s innovation. Rewind thirty years and mortgages came in one flavour only: variable rate.
Building societies and banks have swapped places
Thirty years ago, building societies were responsible for the bulk of UK mortgage lending, while banks filled in with niche lending. By the end of the 1990s this had almost completely turned on its head. Initially, the banking deregulation of the 1980s allowed banks to compete in a growing market for mortgage lending. Later, some of the building societies — in what seemed like a classic case of “if you can’t beat ’em, join ’em” — had become banks themselves.
You used to be able to get a mortgage with your local council
Believe it or not these were a real possibility. An answer to the scarcity of lending at your local billy society was to ask your local councils if they were able to offer you a cheap mortgage. They could do this mainly because they had access to borrow money at rates only slightly higher than those available to the UK Government. It wasn’t long, however, before deregulation and increasing competition meat that the mortgage market was left to the specialists.
Competition is a relatively new thing
It wasn’t the case that you could shop around and compare mortgage deals as you can do now. Thirty years ago it was your local building society or nothing. Perhaps the most radical change at the time was the advent of a ‘Nationwide’ building society (still in existence now of course).
So what changed? Following the Thatcher government’s reforms to banking regulation, building societies were allowed to lend more, banks had the mortgage market opened up to them, and new centralised lenders (in some cases backed by overseas institutions) set up in the UK to compete for a slice of the action.
Lenders were only open during the weekday
There wasn’t the telephone or online service that we’re used to now. Imagine having to sort out a mortgage without being able to contact anybody outside the old gentlemanly ‘banking hours’ of 9 to roughly 4pm. It was very much a face to face process and altogether a much slower job.
Of course what’s really transformed the mortgage market over the last decade the online enquiry and comparison services offered by sites such as SOSwitch. Just in case we haven’t made this clear, you can use our Mortgage section to compare deals and get an impartial adviser to call you back to help choose which one and deal with a lot of the processing for you.
If there’s anything you’d like to add to my thoughts above, anything else you think has changed over the last 30 years, do add your comments in the box below.
The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own do not necessarily reflect the views of SO Media or the Mitchell Farrar Group.