Margaret Thatcher's housing legacy
Posted on 8 April 2013 by
As far as the housing market is concerned, Right to Buy was Margaret Thatcher’s major specific legacy. This fuelled a substantial increase in the proportion of people who aspired to, and became, owner occupiers and that increase continued well after she left office.
According to the English Housing Survey, whose figures go back to 1980, in that year owner occupiers had 56.6% of the housing stock, social renters 31.5% and private renters 11.9%. Following the housing market revolution initiated by Right to Buy, owner occupation in England climbed steadily to peak in 2003 at 70.9%. It has since fallen back to 65%, not because of any change in the desire to own one’s own home but initially primarily due to demographic changes such as a much higher proportion of young people going to University and a large increase in immigration. More recently restrictions on mortgage availability have resulted in an extension of this trend.
The latest figures from the English Housing Survey, for 2011/12, show the housing split as 65.4% owner occupied and 17.3% in both the social and private rental sectors.
However, other factors on the macro front were even more important than Right to Buy in terms of their long term impact on the housing market. It is easy to forget that when Margaret Thatcher became Prime Minister the UK still had exchange controls after the previous Labour Government’s mismanagement of the economy resulted in the humiliation of having to go to the IMF for a bail-out in 1976.
One of the early economic changes adopted by Mrs Thatcher was to abolish exchange controls and open up the UK capital markets. This had a far reaching impact on the UK economy, and in particular sowed the seeds for a radical transformation of the mortgage market during the 1980s.
That decade saw several new lenders, many from America, enter the UK market. Instead of mortgage queues being the norm borrowers saw the benefit of competition with an increasing choice of mortgage options, including fixed and capped rates, which had been almost unheard of previously. It also in 1989 saw the launch of a 25 year fixed rate mortgage with no early repayment charges.
Lenders actually had to start competing for business rather than most borrowers having to decide which lender to start saving with in order to qualify for a mortgage at SVR a couple of years later. Until the early 1980s most banks were not active in the mortgage market and nearly all mortgage lending was done by the much larger number of building societies which then existed.
The Building Societies Association operated a cartel, resulting in most lenders charging the same rate, the SVR. This of course would be illegal today but until the early 1980s no competition meant no discounts!
Until the mid 1980s it was impossible to raise capital by remortgaging and as until then nearly all lenders charged the same rate there was no point in remortgaging to get a better, or different, rate. Therefore until that time the remortgage market didn’t exist.
Mrs Thatcher’s core beliefs were in fostering the competition that derives from free markets and free trade and despite the problems caused by the credit crunch the resultant transformation of the mortgage market lives on today.
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