The UK property market before the Great Financial Crisis (GFC) of 2007-09 was a bit like crypto today.
Think easy money.
Buyers flipping assets they didn’t understand.
Dodgy maths in the shape of self-certification and 110% mortgages.
And of course a media frenzy, albeit one mediated by cuddly folk such as Kirsty-n-Phil and Sarah Beeny, as opposed to crypto’s West Coast techno-bros high on micro-dosing and 2,200% gains.
A particular highlight of the pre-GFC property market for me was when I pulled out of buying a flat in London in 2003 and my deposit cheque was returned to me by the High Street bank – with a cover letter written in Comic Sans!1
The GFC brought that carnival to a screeching halt – though there was no big crash in prices for most of the UK.
The property market did wobble in London for a year or so. But we didn’t see the massive price dislocations or personal hardship reported from the US – the epicentre of the sub-prime crisis.
Tough on sub-prime, tough on the causes of sub-prime
Despite their own citizens getting off relatively easily, UK and European regulators still took a harder line on property lending following the GFC.
In particular, lenders were required to apply tough ‘stress tests’ on customer’s applications to be more confident they could repay their mortgages.
Ratcheting down the banks’ gearing at the balance sheet level surely also constrained lending.
But repeated national crises (Brexit, Covid), low-to-no economic growth, and a near-zero interest rate backdrop deterring competition was probably as big a factor in curbing the lenders’ animal spirits.
This is not even to get into later politically-led dampeners on the housing market, such as extra taxes and regulations for the previously ebullient and lucrative buy-to-let sector, and repeated hikes in stamp duty.
The result? Below you can see that quarterly mortgage volumes is still running below pre-GFC levels:
Total value of gross mortgage lending and annual percentage change in the United Kingdom (UK) from 1st quarter 2007 to 2nd quarter 2024
Source: Statista / FCA
Those numbers are not adjusted for inflation, either. Total inflation between 2007 and 2025 clocked in at 66% by the CPI measure, according to the Bank of England.
In that light the mortgage volume stagnation looks decidedly sickly.
Is there a case for looser lending?
Easing up the post-GFC restrictions on lending a tad would hardly seem to be a case of pouring oil onto flames then.
It’d be more like me making my girlfriend a coffee on a Sunday morning, nudging her out of her sleepy coma.
For sure the government would like to see more vigour in the market. Labour was elected on a growth platform, yet virtually all its major policy moves so far have been anti-growth. Perhaps the only big exception has been work on the planning laws, towards its target to build 1.5m new homes by the end of Parliament.
While I think it’s about as likely to hit that goal as I’m likely to hit the beaches of Ibiza this summer sporting a body fat percentage of under 10%, the housing industry has been unusually optimistic about Labour’s Planning and Infrastructure Bill.
So maybe there will be an uptick in homes built, at last?
However people still need to be able to buy them. And while you might say the problem is houses are too expensive, actually adjusted for inflation UK house prices have gone nowhere for 15 years:
Source: allAgents/Nationwide
A lot of people believe we’re still in the midst of an ongoing property bubble.
But while house prices are certainly still elevated compared to 30 years ago on a price-to-earnings basis, say, the heavy puffing that inflated the UK market was all done back in the pre-iPhone era.
I’d agree tougher lending restrictions aren’t the only reason for stagnant real prices – I hinted at some other causes above – but they must be in the mix.
You think it’s a good thing house prices stopped rising exponentially in real terms?
I agree with that too – but again that’s an article for another day.
Casus belli for a war on mortgage restrictions
So to summarise, we have a government that aspires to build 1.5m new homes.
For political reasons, it clearly wants most of these homes to be bought by owner-occupiers.
If they’re not buying already – when they’re now competing with recently-hamstrung would-be landlords – then I’d suggest that for some access to finance must be a hurdle, given stagnant real prices.
We also have Labour’s growth agenda going nowhere. And nothing juices the UK economy like a good old-fashioned house price boom.
Finally, the big banks are flush with cash. As interest rates expectations decline I’m sure they’d love to lend more of it out at today’s chunkier rates to help them stay that way.
Signs that mortgage lending is already loosening
With the Financial Crisis starting to sound like the war stories of another era to today’s young buyers, the pressure from upcoming generations to ease mortgage lending rules can only grow.
This will be especially true while paying down first-time buyer mortgages is cheaper than renting.
Indeed I think you can already see signs that it’s going to get easier to borrow.
The government says so
By far the biggest giveaway – we’re talking tap into an open goal territory here – is the Government has said it wants to ease lending restrictions.
In December last year, senior Labour leaders wrote to the FCA asking them for ideas on boosting economic growth. In response the FCA said in January that it would look at ways of ‘simplifying responsible mortgage lending’.
The FCA set out its next steps in March, noting:
When lenders decide whether to approve a mortgage, they test whether a borrower could still afford their mortgage at higher interest rates.
As interest rates fall, the current market approach to interest rate stress testing may be unduly restricting access to otherwise affordable mortgages.
The FCA wants to ensure firms are aware of the flexibility its rules provide, and that creditworthy consumers can access the affordable mortgage they need, supporting home ownership.
I read this as code for: as a first step, let’s get lenders pushing the current rules to the limit.
A public consultation on further legislative changes begins next month.
An easier Threadneedle Street
The Bank of England has also got the letter – at least figuratively – and seems to be answering the call.
Its Prudential Regulation Authority said in March it would look to ease leverage restrictions on lenders:
The Prudential Regulation Authority (PRA) is consulting on changing the retail deposits leverage ratio threshold to £70 billion – an increase of £20 billion.
The leverage ratio is designed to give a simple percentage indicator of how much capital a firm has to fund its activities. The PRA currently requires firms with over £50 billion in retail deposits or £10 billion of non-UK assets to meet a minimum leverage ratio requirement of 3.25% plus buffers. These thresholds took effect in 2016 and 2023 respectively, and are designed to capture major UK banks, building societies and investment firms.
The PRA is now proposing to raise the retail deposits threshold, increasing it to £70 billion to reflect nominal GDP growth since 2016. This increase would ensure that the threshold continued to capture major UK firms, whilst smaller firms below the new threshold would have more space to grow before becoming subject to the leverage ratio requirement.
This is small beans in the grand scheme of things. It will only be material for a few challenger banks I think. And again, note the inflation angle – it’s only looking to reset the bar back to 2016 levels.
But it might mark a change of direction?
As an aside these kind of hard-coded numeric limits seem to me typical of post-crisis regulation.
Generously, they leave nobody in any doubt about the rules. Arguably they’re designed to make headlines.
Anyway, banking trade body UK Finance wants more. Its Plan for Growth – set out in March – calls for an easing to regulatory limits on the share of mortgage lending done at loan-to-income ratios over 4.5x, for example.
Lenders are doing it for themselves
Compiling the products and services section of the Weekend Reading links for Monevator keeps me fairly abreast of developments in the mortgage realm.
Here’s a few recent-ish innovations I’ve noticed.
Rent-to-own mortgages
A few specialists now offer rent-to-own mortgages, which seem to be a US import. The basic idea is the buyer rents for a few years in lieu of putting down a deposit, before shifting to repaying a mortgage.
As someone who helped pay off several landlords mortgages for 25 or so years in London, it doesn’t seem the worst idea to me. Not everyone can tap the Bank of Mum and Dad, remember.
But you’d always want read the small print and such agreements definitely won’t be right for everyone.
Cashback is back
In 2006 it seemed like every mortgage came with a cash bung – Northern Rock’s infamous ‘Together’ mortgage enabled borrowers to lend up to 125% of the property value – but the practice largely died out after the GFC.
However in a more modest way it’s made a recovery, with the recent stamp duty hikes the pretext for one building society offering £5,000 cashback.
Buy-to-let lenders are doing it too, though isn’t this cashback just a rebate on high arrangement fees?
Longer mortgage terms touted
Longer mortgage terms lower monthly repayments. This can enable a borrower to service a bigger mortgage on a lower income today. (For a higher total cost, less flexibility, and a reshuffling of the risks).
This has largely happened already. The share of new first-time buyer mortgages with terms over 30 years breached the 50% mark a few years ago. A decade or so ago only a quarter of terms were so long.
Could it go further?
Japan famously sees some home buyers taking out 50-year mortgages and passing them down to their children. Boris Johnson said he was considering such cross-generational mortgages back in 2022.
That same year new lender Perenna gained a license to offer fixed-rate mortgages with terms up to 50 years. I’m not sure how often it actually writes mortgages with such a lengthy term though. Later coverage cites the usual 20-30 years.
Nearly all of us these days work through our ultimate mortgage term via a succession of shorter fixed-rate deals. These are usually two to five years, but you do read more about ten-year fixed-rate mortgages these days. Even Lloyds currently offers them.
Taking out a ten-year mortgage in 2022 at a rate of 2.73% looks like a steal in retrospect.
Lenders hiking maximum loan-to-income ratios
April Mortgages announced it would offer seven-times income mortgages to high earners a few weeks ago. This followed on the heels of mainstream lenders like Nationwide offering to lend to first-time buyers with small deposits at six-times income and Natwest pushing to five-and-a-half times.
For what it’s worth, buy-to-let mortgage product options reportedly hit a 14-year high in February, too.
Interest rates are falling
Okay, this one isn’t about changing the rules. But just as higher interest rates since 2022 have shown how hard it is for many young people to get a mortgage – despite their alreadu paying high rents – so rates coming down should improve mortgage accessibility more generally.
Also, easier financing and looser regulation often do go hand-in-hand.
That might seem counterintuitive. After all, if mortgage rates are more affordable, there’s not such a pressure to tweak the rules to enable more buyers to squeak through the stress tests, say.
True – it’s more that cheap money papers over a lot of sins, at least for a while.
Looser regulation likely won’t show up in rising repossessions or other signs of distress when rates are low, at least outside of job-scything recession.
For most of the past 15 years we had tough regulation to guard against the perils of then low rates. While few expect rates to get so low again, even mildly lower rates could make it easier to sneak high loan-to-income ratio mortgages or some new spin on self-certification mortgages out the door in the context of a more relaxed regulatory environment.
Before the bust, the boom
The dance between regulation, relaxation, and the economic cycle has gone on since ancient times.
In 2025 I judge we’re finally coming out of the ‘never again’ phase that followed the GFC.
Like the Great War, the GFC was existentially terrifying enough to scar a generation of policymakers.
But eventually memories – and lived experience – fades.
To be fair, we could probably do with slightly easier mortgage lending. And I think we’ll get it, albeit against a chorus of warnings that something will break.
But nothing will break – not at first, anyway – and this will embolden more substantial relaxation, setting the stage for another crisis in some distant future.
This is especially likely when you consider the wider backdrop of the sluggish growth in living standards and ordinary people’s feeling that they’re not doing as well as they should versus the guys next door.
(Never mind any sci-fi comparisons to come versus the AIs/robots in the server farm down the road!)
The will to deregulation
In such a climate, politicians are likely to see ‘a more supportive lending environment’ – making it easier for people to get in hock – as a way to enable voters to feel better-off without the State footing the bill.
So in the absence of a disaster, they will increasingly give them what they want.
Again this can’t go on forever. Debt is debt, with all its costs and complications. Easy money isn’t easy.
But I can see see populist politicians on the right, at least, wanting to deregulate business and stoke animal spirits. That was Trump’s agenda, after all, before he went all North Korea with his tariffs.
Imagine a Nigel Farage type in power saying “I trust the British people more than fat cat bankers or no-nothing politicians in Whitehall” as he scraps all curbs on lending. Perhaps we’ve got that to look forward to?
The good news for those of us who are good with money is it should get easier to access mortgages.
The bad news is that not everyone is good with money.
But that’s a problem for another day!
- Really…there’s a photo in the Monevator archives somewhere. [↩]
Brilliantly written article @TI, but don’t you think that we should be just a tad bit more worried?
Lenders starting to offer loans at 6 or 7 times income (in the 1960s the max LTV was 50% and 2.5x joint income), cashback/high LTV/no deposit, the muscle memory of the GFC fading.
And every 17 years or so we seem to get yet another house lending induced crisis.
After the property boom of 1969-73 there was the secondary banking crisis of 1973-75.
After the changes to pooled relief under MIRAS in 1988 there came the bust of 1990-92.
After the decline of bank and building society lending criteria from the late 1990s there followed the credit crunch and GFC of 2007-09.
Next stop 2026-28???
The problem is that the borrowers’ need for long term credit is matched by the depositors’ need for return of capital upon demand.
It’s all well and good having deposit protection, but that existed (albeit less generously) in 2007 when the queues formed outside Northern Rock (a misnomer if there ever was one).
In the name of expanding home ownership the entire global economy almost collapsed, and growth had never really recovered.
Is it really worth the risk?
Interesting article. On the FCA stress testing, banks mechanically take the prevailing SVR+1% which currently means 7.25-8.75% for most the major lenders. The FCA seems to be ‘reminding’ lenders that they shouldn’t automatically use the prevailing SVR but consider market expectations of future rates at refinance. That doesn’t seem so unreasonable but for the rate curve so often being wrong…
The stress test only applies for fixed rates of 5 years or less. That allowed the likes of Perenna to offer 6x multiple mortgages (and now April at 7x). The mainstream banks have always been able to offer mortgages >4.5x but they are capped at 15% of their total mortgages per annum. In practice, this has meant they reserve higher multiple lending for higher earners who have greater affordability.
Perenna was meant to be the first covered bond funded mortgage product in the UK. It doesn’t look like they’ve actually managed to issue one yet though.
The other interesting mortgage product that seems to go unnoticed is the “concessionary purchase” mortgage. If a landlord sells to their tenant at a discount, the discount will be treated as a deposit for the tenants. Typically the discount has to be at least 10% and can mean zero deposit needed by the tenants (at 90% LTV).
Great article TI. I was particularly attracted to this bit.
“A particular highlight of the pre-GFC property market for me was when I pulled out of buying a flat in London in 2003 and my deposit cheque was returned to me by the High Street bank – with a cover letter written in Comic Sans!1”
That I have to see with my own eyes please.I notice in the foot notes that you say that it’s available on the Monevator archive somewhere. I have just done a search with “comic sans” as the subject and only this article came up. If you ever do find it please post it again. A big laugh guaranteed.
> Japan famously sees some home buyers taking out 50-year mortgages and passing them down to their children
In a time of blended families and increasing relationship breakdown, how is that gonna work, exactly? Is this not renting by another name – fail and the bank gets their house back that you and your parents effectively rented before you fell off the wagon. It’s hard enough to stay the course over one life, not screwing up across two generations is asking too much, rags to riches to rags in three generations…
@Howard #1 nailed it
> And every 17 years or so we seem to get yet another house lending induced crisis.
Western attitudes imagine the arc of history bending ever upwards to Progress. I think the East’s presumption of cyclicality is more accurate. Each boom carries the seeds of its own bust within, just as each bust is the genesis of of the next boom
“… mediated by cuddly folk such as Kirsty-n-Phil and Sarah Beeny, as opposed to crypto’s West Coast techno-bros high on micro-dosing and 2,200% gains.”
But, so what? Your “cuddly folk” are repulsive to some, who are far more impressed by the iron will, certainty and drive of the cryptocurrency fanatics.
What I’m really getting at is that your analyses would be stronger if you managed to overcome your biases about who’s nice and who’s nasty. Your views might not be as common as you think.
In finance it’s really much more important to be accurate and correct than to be liked.
@Jonathan #5:
Clearly the light sarcasm of TI’s house style doesn’t sit well with your thrusting, crypto bro fantasies. “Iron will, certainty and drive” gave me a bit of a chuckle though…
In real life, unfortunately likability trumps accuracy more often than not. As someone formerly in the field, the likable ones end up getting the plush front office jobs with tasty carried interest; while the “accurate” yet awkward quants get shunted into the backrooms with their spreadsheets and (occasionally) put in front of investor roadshows when the IR people need actual numbers.
On property Vs crypto, I happen to think that both are unnecessary in a well managed retirement portfolio; but I respect TI’s views and think he made his case in an entertaining and yes, likeable way.
Now then… My boring take on regulatory easing is that it should come on the planning side – “First, let’s kill all the NIMBYs” – higher density housing, and lots of it, clustered round transport hubs and Green belt towns. Focusing on mortgage ratios is grasping the bull by the wrong end, and guarantees a steady supply of BS. Self certification and 7x mortgages certainly seem to be sowing the seeds of another crisis. Maybe it’s inevitable, but in the meantime, let’s build more effing homes, price stagnation be damned.
Believe there is a theory/well-documented “18 Year Property cycle” by Fred Harrison. Rob’s from The Property podcast have spoken about it at length.
#4
Whilst at heart I remain indefinitely optimistic, my head seems to be erring to the view that “Western attitudes imagine the arc of history bending ever upwards to Progress” is at least flawed if not pretty broken.
And, of course, it is all the fault of somebody else and we need to hunt them down and make them pay!
@platformer — Really interesting comments, thanks! You seem perhaps an insider? Re: the 15% share of loan-to-income mortgages about 4.5x, yes that’s what UK Finance is asking to be eased. We’ll see I suppose. My big IO mortgage recently got sold from my upstart lender to a major big four High Street bank. Curious to see what happens at remortgage time!
@Howard — I’ve spent most of the past ten years worried about the idiot decisions people were making, and it hasn’t done me much good. We have a president in the Whitehouse running rampant across the most revered constitution in the world, and with relatively little effective pushback, while some readers accuse those concerned of hyperbole. Against that, shaking my fist at the credit cycle, which is pretty close to a force of nature, doesn’t seem very constructive. 😉 To be fair to me though I did highlight the future problems, and indeed end the piece predicting them. 🙂
@Wolverine’s Barber — (Great name) yes I can’t find it either, which is why I left it as an exercise for the reader. I really thought I’d uploaded it in one of my housing recollections articles. I have seen it in the last few years when I did a tidy up, but suspect it was put into deep storage! Will keep an eye open. I didn’t think much of it at the time. I was more perturbed by my broker telling me in pretty much straight terms ‘just make up a salary if we fill the form in right this lender won’t check it’. It was one of the (several) reasons I made the ultimately costly decision to not buy the flat, fearing things had gone crazy. Which was correct, but it would have been more profitable to buy and sit through the GFC anyway. Alas, who knew ZIRP would ride to the rescue, it wasn’t in the textbooks…
@ermine — Yes, I thought the same. Perhaps it’s different in a very cohesive society like Japan? Obviously Johnson having looked favourably at it is a red flag. 😉
@Jonathan — If I may, I think you might be mistaking the need to inject a bit of colour into an article to lighten up proceedings with an investment methodology. 😉 With that said I’d take the other side of a bit that 100 random people in the street would find Sarah Beeny more cuddly than Michael Saylor, let alone Vitalik Buterin. But we are actually in agreement, I think. My point of making the comparison was that while the clothing may be different, the same trappings of a mania and cheerleaders in tow can be seen in these two apparently little related spheres.
@Mr_Jetlag — Cheers, and indeed I don’t understand why we can’t build attractive and dense new builds around a new station and make some kind of Utopia-by-Berkeley-Homes. They do it all the time in brownfield sites. It has to be worth giving them 1,000 acres and seeing what they come up with.
@Sundar — Yep, though it seems to be being questioned a bit thanks to Covid etc. I’m sceptical about hard cycles like that (I guess it could tie into generational forgetting, given 18 years at school, etc) but I think such theories do a good job of reminding us about reactions, counter-reactions, and there being nothing new under the sun.
@Al Cam — I suspect there’s cyclicality at play here too. Assuming we get over the bumps (French Revolution’s murderous reflexivity, WW2, Cuban Missile Crisis, AGI?) over the long-term we seem to be chugging up and to the right? But alas us poor mortals have to live through some of the dips on the graph. 😉
@TI (#9):
Indeed. I would like to think you may be correct and, in the round (ie adopting an overall global view), this is possibly the likely case too.
Time will tell, but unbounded onwards and upwards at a more ‘parochial’ level does seem implausible in the long run, look at Greek civilisation, Roman Empire, and a.n. other former empire closer to home, etc.
Great article as always. This loosening of credit would tie in very nicely to the 18.6 year property cycle which would predict a peak around 2026 ish. Although how Covid has affected the cycle remains to be seen
Fred Harrison, Phillip Anderson and Akhil Patel have all written about the property cycle extensively.
If Labour were serious about growth they would reduce stamp duty, this combined with a relaxation of the lending criterion could really juice things. People in the South East and London just won’t move because these tax costs are excessive e.g. £40k on £1M house, £150k on £2M.
> this combined with a relaxation of the lending criterion could really juice things.
As the lady in the movie said, Be afraid. Very afraid. Growth has a thousand faces, juiced house prices ain’t one of them. That’s not growth, that’s metastasis.
@ermine You may not like the growth that results from increased housing activity but there is usually a tremendous amount of ancillary activity around it i.e. furniture stores, moving companies, lawyers, builders etc. that would really help the economy.
@Chuckie B #14: But is that the problem here? We have a supply side issue. Not a demand one.
Productivity (in terms of output per unit of input of hours worked / kwh used / £ invested) is too low. And there’s insufficient housing for need. Again, supply side.
So how does a demand side stimulus fix that?
I’m not anti Kenysian (or even anti MMT).
Like the neo classical Austrian and the Chicago monetarist schools, the Kenysian’s have their strong points.
But it’s more a 1970s type problem (low supply relative to capital) now than it is a 1930s one (low capital relative to supply).
Before doing anything policy wise, we need to be confident first that we’re setting off towards the right destination, and not inadvertently making a bad situation worse.
Putting more capital into demand by increasing the availability of capital to house buyers will – IMHO – just increase the disequilibrium in supply, further raising house prices relative to earnings.
As housing is a non substitutable necessity. and not a discretionary item of expenditure, that’s only going to further fray the social fabric, encourage greater political extremisim (people with nothing to lose are more likely – entirely rationally – to go to the extremes), and have unwelcome second order effects (e.g. a worsening dependency ratio, as higher house prices will mean more non home owners having to live longer with their parents, rather than forming a new household with their partner, which is going to styme starting a family of their own).
And making capital more available to buyers not only pumps up the price of housing further, but sooner or later it imperils the lender because lending decisions become less based upon cold headed commercial calculation of risk with prudent capital buffers (bank solvency ratios) and more orientated on an arbitrage upon central government policy to loosen lending.
Fundamentally, that’s also not fair on depositors who, reasonably enough, think that they’re taking a low risk having funds on deposit with major banks.
We’ve seen this play out so many times before in different countries, including in the UK.
Ultimately, when the banking sector is at risk, the costs are socialised, and then the whole economy suffers.
It just isn’t worth it, even though the intentions behind it are good, and (IMO) moreover it is ultimately counter productive.
HMG would be better off just borrowing say £50 bn to compulsory purchase (following the appropriate legislation) at agricultural land values several million acres, and then selling it on at cost to developers with fast tracked planning consent in exchange for the developer contracting to build low cost (low fixed profit margin) social housing.
That at least addresses the supply side.
@ Howard
‘HMG would be better off just borrowing say £50 bn to compulsory purchase (following the appropriate legislation) at agricultural land values several million acres, and then selling it on at cost to developers with fast tracked planning consent in exchange for the developer contracting to build low cost (low fixed profit margin) social housing.’
I do like this idea, and would suggest all three paths to follow- purchase land, reduce stamp duty & loosen lending.
I think the country needs to find economic growth from somewhere and housing is what the people love. We have been in the doldrums for years and sentiment has been so depressed – we need to feel good times again to boost spending and economic growth in this country. Sure we can argue about the quality of that growth but if we’re building houses as well then at least some of it can be perceived as ‘good’.
Good read – TI.
@TI(#9):
Re: “My big IO mortgage …”
That could indeed be interesting. I guess the key factors could be prevailing circumstances at the time and your new lenders attitude and/or flexibility; although I suspect you will have seen the movie about the latter before? Is your renewal a long way off?