THE MIDLANDS PROPERT Y GUIDE MONE YWATCH F INANCE
How many Britons own their own home? It’s estimated that there are 17 million owner-occupied properties in the UK.
How many people have a mortgage in the UK? According to the FCA (Financial Conduct Agency), in 2014 there were 10 million outstanding mortgages accounting for £1 trillion which had been borrowed in total.
THE 1980S: DRAMATIC INCREASES IN HOME OWNERSHIP MIRAS (Mortgage Interest Relief At Source) was one piece of legislation which encouraged more Britons than ever before to buy their own home. This allowed tax relief on the first £30,000 of any qualifying mortgage.
The other piece of legislation, the Right to Buy Scheme (set out in the Housing Act of 1980) gave tenants the chance to buy their council house. The prices were based on market valuation but tenants were also offered discounts of 33-50% to reflect the rents they had already paid and to encourage take-up. No down- payments were necessary but if they subsequently sold the house in a certain period, they had to repay the discount they’d received.
The money which local councils received for these sales was used to pay off their debts and they were explicitly banned by central government from replacing the lost council housing stock. This short-sighted policy would have serious repercussions in the coming years.
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These two policies did more than anything ever before to dramatically increase the number of people taking out a mortgage. By 1991, 67% of Britons owned their own home (both with and without a mortgage).
At the same time, the 1988 LSTV (Large Scale Voluntary Transfer) policy led local authorities to transfer control of their housing stock to housing associations and regulated social landlords; the government was anxious for councils to surrender control of social housing.
Summary: In the Post-War period, a million council homes were built to replace those destroyed by bombing despite the UK struggling economically.
Economic prosperity and government initiatives encouraged more Britons to purchase houses in the 1950s and 1960s.
Legislation restricting some people’s access to social housing in the 1970s and 1980 Tory policies meant home ownership became possible for more people.
The Right to Buy Scheme for council tenants, with generous discounts, meant a sector of the population had easy access to mortgages for the first time ever.
THE 1990S AND SPIRALLING HOUSE PRICES Beginning in the 1980s – and up to the early 1990s – the deregulation of the financial sector allowed the development of different types of mortgage to reflect the need to tailor the mortgage as a financial product to suit different people’s personal circumstances. This change was dominated by the banks, which had always been more savvy about marketing and advertising than the more tradition-bound building societies. It paid dividends since
customers increasingly applied to banks for a mortgage rather than building societies so that their market share went from 3% (1977) to 36% (1987).
Unfortunately, the demand for property beginning in the 1980s led to successive increases in house prices. Since 1993, these prices have risen faster than both inflation and real wages making it difficult for some people to find affordable housing. Increase in demand was also affected by the easy availability of Buy-to-Let mortgages starting in 1996.
HOUSING AND THE 2008 ECONOMIC DOWNTURN The large drop of 7.6% in house prices in 2009 was a big shock to property-owners who had assumed that house prices would continue to rise. This decrease was a knock-on effect of the economic downturn of 2008 and led to mortgages becoming less easily available and mortgage providers imposing stricter criteria to lend money.
The sale of social housing in previous decades (and more importantly the fact that it had never been replaced) meant that accommodation became more and more difficult to find. Increasingly, those without a mortgage had to resort to renting privately so that the proportion of Britons with a private landlord doubled to 15% (often those who had taken out Buy-to-Let mortgages). The lack of availability meant it was a landlords’ market and rents increased accordingly with landlords being able to pick and choose who they rented to.
As far as social housing was concerned in this period, the rules were changed regarding Right to Buy Schemes; to be eligible, tenants had to have at least 5 years tenancy while the maximum discount was 60% or £75,000 (whichever was lower). Also, the council had to be given first refusal if the home was put on the market.
THE CREDIT CRUNCH OF 2008 AND MORTGAGE PROVIDERS The widespread defaults on sub-prime mortgages in the USA had an economic knock-on effect on all Western countries including the UK although there were fewer ‘bad’ mortgages and much stricter controls. However, some mortgage providers had a higher percentage of risky loans (offering as much as 125% mortgages) and some had funded their expansion and share of the mortgage market by borrowing. Some financial institutions had to be bailed out by the Bank of England whilst others were nationalised.
A slump in demand meant falling house prices with some mortgagees being faced with negative equity – or owing more money on their property than it was worth. This change in the property market also had an effect on the construction industry so that fewer houses were built.
Questions: How many council houses were sold under the Right to Buy Scheme? Since 1980, 1.5 million council houses have been sold under the Right to Buy Scheme although since 2014 it’s been abolished in Scotland.
How much are average annual increases in house prices in the UK? According to research carried out by ONS, the average annual increase in house prices since 1980 is 6.9%, with the biggest increase occurring in 1988 (25.6%). In that period there have only
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