In 1978 a mortgage from the Halifax in Huddersfield was arranged by the branch manager interviewing the borrower. Not the collateral of the borrower but the borrower themselves. Where did they work? Did they look like they would be reliable in repaying a loan? Did they live in the area long enough? He or she would then lend approximately three times the borrower's salary at a cartel rate (which had been agreed collectively at the regular cartel meeting of all the country's building societies). There was no point shopping around. There was nothing to shop around for.
That system was designed to do one thing: keep housing boring.
The Deliberately Dull Machine
The cartel model of the Building Societies Association – fixed salary multiples, collectively agreed interest rates for mortgages, no product competition – was explicitly designed to make housing uninteresting. A mortgage was not a financial product but closer to a utility, with the same interest rates offered by all providers, the same conditions applied everywhere, and local assessors who were familiar with the area where the customer lived. And a house was simply where people lived, not a position which they held or a figure which they monitored.
This held, more or less, until the mid-1980s.
The Week the Cartel Fell Apart
Mortgage lending was opened up to high-street banks by the Building Societies Act and the Big Bang of 1986. In the resulting environment of competition, the building societies turned into banks, demutualising one by one: Halifax, Abbey National, Woolwich and Bradford & Bingley, all by 2000. As they transitioned from being customer-owned institutions to becoming public limited companies with publicly traded shares, their new shareholders required growth. New products, created in order to compete with other offerings in the market, led to more borrowing. The resulting increase in prices was the outcome of switching off the deliberately dull mechanism of the building societies.
The Policy That Changed the Question
Right to Buy in 1980 did something quieter than simply selling council houses. It changed the perception of what a home was to be. Politically the home was explicitly described as a capital asset; something to build equity in and sell at some future date. Before prices really took off, views of homes as capital assets contained within them the notion of return, of timing and of whether to extend or move on.
The Day Your Street Got a Share Price
For most of the 1990s you could have felt that a new logic had emerged although it was difficult to quantify. Prices were rising but information on them was vague, often second-hand and came from estate agents. Rightmove launched in 2000. Later the Land Registry made sold prices searchable by address, giving every house on every street a public record. Every Time You Do Something, You're Voting. The first time you Googled your own address, you voted for this system.
The physical house hasn’t changed – the bedroom is still the same size – but the information layer on top has changed in living memory, largely as a result of a series of policy choices. The question of what a house is worth used to be one that would be answered once, when you sold. These days it’s a question that people ask out of habit on a Tuesday evening, and that didn’t happen by accident – someone decided it should.
Are building societies still around at all?
Yes – about 40 remain, with Nationwide the biggest. They operate as mutuals, meaning no shareholders, which tends to produce slightly better rates for savers and borrowers than the big banks. The model survived deregulation, it just stopped being the dominant one.
How much has the lending system actually changed since 1986?
Quite a lot, in every direction:
| Pre-1986 | Today | |
|---|---|---|
| Typical mortgage limit | 3x annual salary | 5-6x annual salary |
| Rate-setting | Cartel-agreed, identical everywhere | Competitive, varies by lender |
| Sold price data | Approximate, from estate agents only | Searchable public data by property address |
| Building societies | Around 150 mutuals | About 40 remaining |
The effect on price is clear given the first row. The vendor can expect double the price they were previously selling their house for, as the buyer can now get a mortgage of double the amount previously lent.
Do other countries think of housing the same way?
An obvious country for comparison is Germany. The share of homeowners in Germany is around 50% while in the UK it is roughly 65%. Mortgage markets in Germany have never been deregulated as sharply. Tenant protection in Germany is far stronger and house prices in Germany have historically been much less volatile. This reflects a different cultural settlement, based on different institutional choices made at different times.
What happens to council tax if your house value doubles?
Not directly, and that is due to the historic basis for Council Tax bands in England. The bands were set using the values for properties in April 1991 and have not been revalued since. This means that a house that has gone up in value to, say, £800,000 could still be in the same band as a house that has gone up in value to, say, £200,000, if both properties were in the same band when they were last assessed – which in parts of London is entirely plausible. The Welsh system was revalued in 2003 but the English system is still using the prices from 1991.
FAQ
Are building societies still around?
Yes, about 40 building societies remain, and Nationwide is the biggest. They run as mutuals, meaning they have no shareholders, which tends to produce slightly better rates for savers and borrowers than the big banks. The model survived deregulation but stopped being the dominant way of providing mortgages.
Why did house prices rise after 1986?
Mortgage lending was opened to high-street banks by the Building Societies Act and the Big Bang of 1986, which ended the building society cartel. Societies such as Halifax and Abbey National became shareholder-owned banks by 2000, and those shareholders wanted growth. Competing products encouraged more borrowing, and that pushed prices up.
How much more can you borrow now than before 1986?
Before 1986, lenders typically offered around three times annual salary, whereas today the figure is five to six times. Rates were once agreed by a cartel and identical everywhere, but now they vary by lender. Because buyers can borrow roughly double, sellers can expect roughly double the price they would previously have achieved.
Does council tax go up when your house value doubles?
No, council tax does not rise directly with your home’s value. English bands still use property values from April 1991 and have not been revalued since, so a house now worth £800,000 could sit in the same band as one worth £200,000. Wales was revalued in 2003, but England still uses 1991 prices.
