Z2K Housing Review: Z2K Housing Review Issue One April 2009

Getting a mortgage in 1975 and how it changed by 2003.

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This reconstruction of interviews when applying for a mortgage loan as at 1975 and 2003 illustrate the changes that have occurred in lending practices over this period. The gradual shift in these practices, facilitated by a number of deregulatory Acts passed by the Thatcher Government in the 1980s and driven by the increasing need to compete in terms of lending volumes, has placed millions of borrowers in potentially risky situations. The practices, which have continually pushed applicants to or beyond the limits of their capacity to repay, have been termed ‘sub-prime lending’ in the United States.


The results in terms of the growth in volume of mortgage loans have been illustrated in a previous video which showed the explosive growth in house purchase debt. This volume of effective demand for house purchase, in the face of relatively stagnant output, has been the main factor in the abnormal growth in house (and consequently land) prices. As argued previously this growth in property values has also fed through into a growth in rent levels well in excess of inflation. The overall result has been sharply decreasing housing affordability.


The key changes in lending practices have been:
Taking the second earner’s income into account in the loan calculation
An increase in the multiple of loan to income
Lending a higher proportion of the value of the property to be purchased
Lengthening the repayment term so the monthly impact is reduced
Not checking income or even encouraging over-statement of income


The couple have very little power to vary the conditions in which they are entering into the biggest financial commitment of their lives. The caution expressed by Linda Jackson in 2003 was well-based as the final 2008 scene makes clear. Their lives are now dominated by the repayment responsibilities and repossession may well be a consequence.