Published: 31 May 2012 | Author: Bernard Clarke
With the country about to embark on an extended holiday to celebrate the Queen’s diamond jubilee, we thought it would be interesting to compare the housing and mortgage markets of 60 years ago and today. In 1952, the UK economy was still emerging from a long post-war malaise, one of the effects of which had been to depress construction rates. So then, as now, the country was not building enough homes to meet its needs.
Despite the sombre post-war mood, there were things to celebrate in 1952. As well as the new monarch’s accession to the throne, it was another Olympic year. But sporting celebrations were low key, with Great Britain finishing a disappointing 18th in the medal table, winning the country’s lowest ever tally of medals and just a single gold, in equestrianism.
1952 also saw the establishment of the European Coal and Steel Community. However, no-one predicted then that this six-nation grouping would evolve over 60 years into the enormous structure that is today’s European Union, and which currently exerts such a huge influence – way beyond coal and steel – on housing and mortgage markets, as well as wider economic performance across the whole of Europe, including the UK.
Housing and construction
When the Queen acceded to the throne seven years after the second world war, the UK’s housing stock was in a truly parlous state. The devastation wreaked by the war had left four million UK homes destroyed or damaged, and post-war construction took several years to recover.
In 1952, however, the UK managed to construct 248,000 new homes – an impressive total compared to 145,000 built in 2011. This was the early days of the post-war boom in council house-building, and more than 210,000 of the homes completed that year were in the social sector (202,000 council houses, and 10,000 built by housing associations). Only 36,700 homes were privately built – but numbers were beginning to recover rapidly and by 1955, 116,000 privately built homes were completed in the UK.
The 1951 census recorded the population of the UK at almost 45 million. In the same year, the stock of dwellings totalled 14.1 million. By 2010, the number of homes in the UK had almost doubled to 27.2 million, to house a population that had grown by around 40% to 62 million.
Although house-building has declined dramatically in recent years, construction rates have been much healthier for much of the Queen’s reign. Once the UK had recovered from the post-war building slump, a construction rate of more than 200,000 homes a year was maintained until 1982, when it blipped down to 183,000. It then recovered for another decade before falling below 200,000 again in 1991.
Briefly, between 2004 and 2007, the UK again managed to build more than 200,000 new homes annually, before construction collapsed to a low point of 139,000 in 2010 – the lowest total in a run of figures going back to 1949. Post-war UK housing construction peaked in 1967 and 1968, when the annual rate briefly exceeded 400,000, with around half privately built and half in the social sector.
Changes in tenure
The widespread availability of mortgage finance for much of the post-war period has helped bring about huge changes in tenure. When the Queen began her reign, there were 4.1 million owner-occupiers and another 2.2 million renting in the social sector. Around half of all UK households (6.5 million) were renting privately.
By 2010, the number of UK owner-occupying households had more than quadrupled to 17.8 million, with around 10 million buying their home with a mortgage (a further 1.4 million mortgages were held by buy-to-let purchasers). There were 4.9 million households renting in the social sector, a total that had been diminished since the 1980s by right-to-buy legislation.
Meanwhile, although the number of households renting privately declined to a low point of just over two million in the early 1990s, the growth of buy-to-let lending has contributed to a revival of private renting over the last 20 years or so. During this period, the number of households renting privately has more than doubled, to 4.5 million.
While the stock of homes has almost doubled in 60 years, the rate of increase in property prices has been on a much more dramatic scale. In 1952, the average price of a UK house was £1,891. But by the first quarter of this year, it had risen to £161,000, according to the Land Registry – an increase of more than 80-fold. Over 60 years, however, the rate at which house price inflation has exceeded growth in real incomes has been much more modest.
Changes in the mortgage market
The number of mortgage borrowers has risen even more rapidly than the four-fold increase in owner-occupation. In 1952, there were just 1.65 million borrowers. Now, there are around 10 million mortgages held by owner-occupiers, a six-fold increase. The last 60 years have also seen huge changes in the way in which the lending industry operates, and in the types of mortgages available to borrowers.
In the early 1950s, almost all loans were advanced by building societies, and the overwhelming majority were small, locally-based lenders. In 1952, there were 800 societies operating in the UK. Today, there are more than 50 building societies. Even at the start of the Queen’s reign, the process of lender consolidation was well established, and the number of building societies had declined from more than 2,200 at the turn of the century.
Building societies are a hugely important part of today’s mortgage market, in which different types of lending institution help provide choice and diversity for consumers. But the biggest market shares are now held by large, national operators – whether they are building societies or banks.
The last 60 years has also seen a huge expansion in mortgage lending. Data on building society gross advances extending back only to 1955 shows that at that stage, three years after the Queen began her reign, societies advanced mortgages totalling £399 million. This year, we are forecasting that lending will amount to £133 billion, broadly in line with the totals advanced in each of the three previous years. But in 2007, before the onset of the credit crunch, lenders advanced mortgages worth £363 billion.
Types of mortgage – and rates
Even with the current shortage of mortgage funding and restricted access to credit, borrowers today can take out a wide range of different types of loans, including short- and long-term fixes, capped and tracker products, as well as offset mortgages and loans to invest in buy-to-let property.
There have also been some big changes in the sources of finance other than credit used by borrowers to buy their homes, although the data on this does not extend all the way back to the 1950s. According to English Housing Survey (EHS), there has been a significant decline in the proportion of buyers relying on savings to help finance their property purchase (from 58% before 1970 to 37% between 2000 and 2006).
Over the same period, the strong growth in house prices appears to have provided equity for a higher proportion of borrowers to fund subsequent housing purchases. According to the EHS, only 21% of borrowers relied on the proceeds from the sale of a previous home before 1970, a proportion that had risen to 56% in the period between 2000 and 2006.
Interest rate volatility
For long periods of the Queen’s reign, there has been considerable volatility in the rates paid by mortgage borrowers. But in the last 15 years or so, we have seen something of a return to the era of low and stable rates enjoyed by borrowers in the 1950s – perhaps surprisingly given the period of turmoil that preceded it. But the return to lower and more stable rates in recent times has taken place against a very different monetary policy backdrop.
In March 1952, the Bank rate went up from 2.5%, to 4%, although a significant proportion of borrowers on fixed-rate loans may not have been affected by a change in their borrowing costs until taking out a new loan months or even years later. Official rates hovered at around this level for much of the rest of the 1950s, before edging up to fluctuate in a band of between 5% and 8% for much the 1960s.
The period of extreme volatility in official rates occurred in the middle of the Queen’s reign, for a period of around 25 years from the early 1970s onwards. Initially triggered by currency and oil crises that contributed to wild stock market fluctuations, the prevalence of high and volatile official interest rates persisted throughout the 1970s and 1980s, with the Bank rate peaking at 17% in November 1979. Rates began to stabilise at lower levels from the mid-1990s onwards, a process that was reinforced when the Bank of England assumed responsibility for setting official rats in 1997.
Perhaps not surprisingly, borrowing rates have followed a similar pattern of volatility. In 1952, the Building Societies Association (BSA) recommended rate for new mortgages stood at 4.5% in March 1950. A BSA recommended mortgage rate remained in place until 1984, peaking at 15% in 1979 and again in 1981.
For much of the 1970s and 1980s, when borrowers were exposed to the highest and most volatile lending rates, UK inflation was usually running at a similar (or even higher) rate. This meant that, despite a lack of stability in household finances, mortgage borrowing was quickly eroded by inflation. So, individual borrowers' household finances may have been at risk as a result of interest rate volatility, but the period of exposure was often relatively short-lived. In the latter part of the Queen’s reign, borrowers have also had a wider choice of fixed or capped mortgages to protect themselves from volatility in borrowing costs.
Tenure patterns, levels of home-ownership and the UK mortgage industry have all gone through seismic changes during the 60 years of the Queen’s reign. Owner-occupation continues to be overwhelmingly the tenure of choice, and the mortgage industry has helped extend it from about one-third of the population in 1952 to around two-thirds today, creating in the process a source of wealth and independence for the majority of home-owners.
For considerable parts of the last 60 years, housing and mortgage markets have gone through periods of significant volatility. During parts of the Queen’s reign, the UK has maintained a respectable construction rate. But recently it has failed by a considerable margin to build enough homes to keep pace with household growth. Housing and mortgage affordability therefore continue to present considerable challenges, particularly for first-time buyers.
But, despite the difficulties the mortgage market still needs to address, it has made enormous progress. Let us not forget, for example, that 60 years ago a woman would not have been able to take out a loan without her husband or father acting as a guarantor. So, at a time of national celebration, we can also celebrate our own achievements – while acknowledging there are still many challenges ahead.