Having recently attended a 25th anniversary seminar session organised by a highly esteemed mortgage packaging company, I am minded that the market has changed, enormously, over the time I have been working. In 1986, when I joined the financial services industry, the Bank or Building Society Manager, was King. Either you had to have been saving with an institution to amass your deposit, then go cap-in-hand to the Manager; or pay a visit to an intermediary, who had the ear of a few local managers and was trusted to introduce business to them. In any event, a  deposit of some 20-30% would be required before most lenders would consider candidates to be suitable borrowers.

This was pretty near the beginning of the housing boom, as we know it. Clearly, prices had been rising, but now there was an increased sense that home ownership was becoming more accessible and what was more significant, was that it was also looking to some like a license to print money. Property prices were spiralling upwards, and it was becoming easier to obtain finance to get one’s own piece of real estate. The traditional mortgage lenders were becoming more generous in their lending criteria, and new lenders were keen to get in on the act. Fuelled, in part, by increasing City bonuses, and the booming stock market, London prices boomed and the effect rippled out throughout the South East, and, in smaller degrees, across most of England. What is more, the ‘Right to Buy’ policy (introduced to a much wider degree in 1980) with its sometimes spectacular discounts, grew in popularity, even to the extent of some council tenants purchasing their homes, at a discount, and living elsewhere in order to rent them out. Buy-to- Let mortgages started to gain popularity, adding fuel to the flames of property inflation. It seemed like the only way was up! Inevitably the bubble had to burst, and in the early nineties after the UK had spectacularly fallen out of the ‘Exchange Rate Mechanism’ of the European Community, what used to be referred to as the Minimum Lending Rate (now the Bank of England ‘Base Rate’) shot up to 15%, the effects started to bite. Property values dropped by an average of 30% in a relatively short time. Monthly mortgage repayments became unaffordable for some, repossessions were almost commonplace, and daily, stories of homeowners handing their house keys back to their lenders, filled the press.

Cyclical as almost all markets are, this sorry situation began to improve as interest rates gradually came down. Those who were able to afford the peak rates received some respite, and those who were able to afford to buy property in the ‘dip’ had some real bargains. Before too long, the lending market was even more relaxed, moving into the period when many thought it was too easy to borrow money. Lenders lent increasing multiples of an applicant’s salary, and higher percentages of the property’s value. 100% mortgages became readily available and enduring the stock market woes of 2000 to 2003 (and further fuelled by the consequent reductions in interest rates) the trend in house price growth thundered on. I clearly recall the 125% mortgage scheme, offered by the then relatively famous (and now infamous) Northern Rock Building Society!

Whilst I am not normally one to leave my reader in suspense, there is still too much of this story left to run. I’ll be back in a couple of months, with the second part.

Until then, enjoy your season “of mists and mellow fruitfulness”.

David Foot