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What is a Mortgage? - The History of Mortgages

So, for readers who are asking what a mortgage is, we’re assuming that, like most people, you think they’ve been around since the dawn of time. Well, we’ve got the history of mortgages, right here.

It’s a fair statement to ask, ‘what is a mortgage’, because it’s just something that has been around for, what feels like, forever. But, mortgages in the UK have an interesting history. How would you ever be able to pay for a property outright in the past? Just a mere 100 years ago, owning a property would just be a dream for many UK residents, especially the working class. But what’s changed? Read on and find out!

Origins of 'What is a Mortgage'

Ok, first of all, let’s explain what a mortgage is. It’s essentially a legal agreement where a bank lends money at interest so that they can take the title of the borrower’s property. Think of them as ‘mortgage loans.’ This will then come with the assurance that once the debt is paid, the home will be given to the borrower after mortgage payments are completed.

We mean, let’s be honest. In the 21st century, getting a mortgage is at the very least a prospect to a large majority of UK’s adult population. But was it always this way? Sadly, the answer is no. Due to the industrial revolution in the Victorian period, working-class people were forced to leave their homes in more rural areas in pursuit of work in city-based factories.

But what has this got to do with mortgages? Well, due to the low housing stock, borrowing money was left to the higher classes around this period. This, in turn, meant that owning a property outright was an upper-class accessory.  

Sadly, what this meant for the working classes was that they were always at the whim of their landlords. They could drive up their rent prices as they wished and do it despite wages not increasing for British workers. With 90% of British workers living in rented property around 1900, unsurprisingly, this proved to be a big problem.

But then, through the mist appears the Rent Act. This was a great piece of legislation for British workers. This is because it prevented landlords increasing their rent prices without warning.

Britain going through the Wars:

Following the horrors of the First World War, the government introduced a housing initiative for war veterans. ‘Homes for Heroes’ was introduced to help soldiers who fought in the First World War obtain housing at an affordable price. What’s more is that this policy ran parallel with the beginnings of welfare provisions for workers as well. Thus, showing the government slowly changing its ways to make housing more affordable for UK citizens.

So, what we can see here is the beginning of mortgages integrating their way into society. And it didn’t stop here!  By 1939 the number of people in Britain who owned a home had an increased to a whopping 27%. Thus, showing a real increase from the days of the industrial revolution. What a great bonus for the public.

Yet, following the Second World War, this steady increase in house ownership began to stagnate. This was because the availability of houses had depleted due to the effects of bombing. As a result, this significantly reduced the amount of viable accommodation in the UK.

Post-War Britain:

So, we’ve seen how Britain’s housing problems were just starting to get solved. We’ve also seen how that progress has halted due to the atrocities of the war.

But we’ve got good news. It picks back up!

Post-War Britain was concerned with replacing the damaged and destroyed housing along with creating a welfare state. This was to ensure that everyone could get back on their feet following the atrocities of the War. Unfortunately, severe expenditure during the War had left a crippling debt on the country. This made it difficult for the then Labour government to implement the welfare state they wanted so badly. But perseverance paid off. This meant that around 1,000,000 council houses were built in the decade that followed, replacing a lot of the slum properties in the UK. There was also an increase in private sector housing with the formation of entirely new communities & towns being established where once were fields.

1950s and onwards:

So, all of these new homes, surely that means more outright property ownership? You’d be right to think so! The Tory government placed a lot of emphasis on making home ownership much easier for UK civilians. This was done by reducing stamp duty and giving money to mortgage lenders so that they could provide more mortgages for the general public. This meant that property ownership started to pick back up again. By the mid-1960s property ownership in the UK was at an all-time high, situating itself around the 45% mark.

And it didn’t stop there. Some of the people that were asking what a mortgage is in the years before the war were now on the cusp of owning their own home. In the 1970s the Labour government recognised that demand for social housing was outweighing its supply. This caused the Homeless Person’s Act 1977 to provide that anyone who didn’t meet the requirements could rent privately instead.

Property ownership increases in the Thatcher years:

With an ever-growing desire to get a mortgage increasing year on year, the desire of home ownership was on the increase. Margaret Thatcher’s Tory government sought to satisfy the public’s desires. Elected in 1979, one of Thatcher’s flagship policies was to allow more people than ever to have the ability to buy their own home.

The right to buy scheme introduced by Thatcher’s government was a real incentive for her to gain the working class vote. It meant that prices on council homes were offered at discounts between one third and one half off of the property price. Combined with the MIRAS (Mortgage Interest Relief at Source), this encouraged more British people to buy their own home as it granted tax relief on the first £30,000 on their mortgage.

Economic Downturn in 2008:

The reduction of 7.6% in house prices came as a huge shock for those with a large stake in the property market. The increased sale of social housing in recent years meant that social rental properties became increasingly difficult to find. This meant that those who didn’t have a mortgage or didn't qualify for social housing had to look for private rental property. Demand increased for a private rental property, doubling to 15%, meaning a real growth in the "Buy to Let" sector.


Now, the present day… Due to increased property prices & less of a desire to purchase at any expense the first time buyer market isn't as strong as in previous times. Combine this with the increased costs incurred by potential landlords & we see the bottom of the property chain being deprived of buyers. This & the dreaded BREXIT sees a real slow down, with more and more people choosing the flexibility of renting to homeownership. Are we seeing a return to rent as the way forward or will some sort of encouragement be given to first-time buyers were trying to save for a deposit while paying rent makes home ownership that distant dream? 

But, luckily for you, this is where we step in! At Mortgages Online our team of experts can help find the right lender and deal for you to make your first leap into the property market not as intimidating as it sounds. For 1000s of types of mortgages, use MO.


Laura Waller

Laura Waller has been working in the mortgages industry since 2013, joining an independent brokerage in Essex. Laura has CeMAP 2 & 3 – Certificates in Mortgages Advice and Practice. Since then Laura oversees marketing for Mortgages Online, using her experience and expertise to write articles and blogs about mortgages and related topics.

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