Written by: James Staunton
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity.
2005 was quite a year for the UK’s mortgage market. I remember those heady days quite fondly. Perhaps I shouldn’t. It was, after all, a sustained period of careless and inappropriate lending. Easy money and loose credit were sloshing around the market – and ultimately the country paid a price.
Life was good
Financial institutions had an inadequate amount of information on the financial condition of their borrowers. Bankers merrily overestimated the creditworthiness of those borrowers. But there were upsides for lowly PRs like me. I was happily selling-in stories to Robyn Hall, John Murray (RIP), and Kevin Rose (on the phone – ha!). Mortgage Edge was still in print. Alan Cleary was launching Edeus. We held journalist meetings in the Savoy and launch parties in the Leicester Square Odeon. Life was good. And those relaxed lending practices made it easier for me to get an inexpensive loan. I was a beneficiary of the mortgage boom both directly and indirectly.
CPI was between 2.5 and 3.0 per cent – a fraction lower than it is now – although the Bank of England’s base rate was around 4. 5 per cent (by the back end of the year), not a million miles from the current rate.
Brokers were thriving, too.
Brokers only handled about 50-60 per cent of mortgage sales – a decent chunk, but nowhere near today’s 75-80 per cent, where intermediaries dominate. Back in 2005, you could still pop into a Halifax or Nationwide branch and sort a deal directly – and many did.
At the moment, the average home is worth around £270,000 according to Nationwide and prices are rising by less than 3 per cent a year. Well, at the start of 2005, the average house cost around £153,000 which sounds tiny – but prices were rising by almost 10 per cent year on year. The Economist described the increases in UK house prices as forming part of “the biggest bubble in history”. Goodness but didn’t they turn out to be right.
Baron King of Lothbury, then just plain old Mervyn King, was Governor of the Bank of England. Now I think King gets a bit of a bum rap – Dean Baker singled King out in The American Prospect, saying his failure to tackle the UK’s housing market bubble resulted in catastrophic “fallout” when the bubble burst, resulting in the UK’s worst recessions since the Great Depression. I don’t remember anyone thinking King was lightweight. I don’t remember anyone looking admiringly at the Australian strategy to keep a bubble forming (to dampen house prices they warned interest rates would, in future, be set higher than justified by the two-year inflation forecast). At the time, King felt like something of a titan.
Risky mortgages and regulations
Of course, the long-term trend of rising housing prices had encouraged borrowers to assume risky mortgages in the anticipation that they would be able to quickly refinance at easier terms. It wasn’t just borrower appetite. Global investor demand for mortgage-related securities was high. Financial institutions such as investment banks and hedge funds – which were not subject to the same regulations as retail banks – began playing an increasingly important role in the mortgage market.
In 2005, fixed-rate mortgages were certainly popular, but variable-rate and tracker mortgages were more significant than they are today; I think we might have been a less risk-averse bunch back then. I certainly was. Interest-only mortgages were common, especially with first-time buyers – I had one and I absolutely loved it. And affordability checks? Ha! Subprime was really kicking in as was self-certification mortgages (“liar loans”), catering to borrowers with non-standard incomes or poor credit. Let’s just say that lending criteria were looser before the 2008. Back then, you could walk into a lender with little more than a smile and a payslip – sometimes not even that.
The average loan-to-value ratio for first-time buyers was around 80-85%, but high-LTV deals were everywhere, egged on by a market that seemed to only go up. I recall Northern Rock’s infamous 125% LTV deals, letting you borrow more than the property was worth. It was madness, but it felt normal.
The party couldn’t last.
By 2007, cracks were showing. Northern Rock’s collapse was a wake-up call, and when the global financial crisis hit in 2008, the UK’s mortgage market imploded. Those subprime and self-cert loans? Toxic. House prices tanked – down 15 per cent in 2008 alone – and borrowers who’d stretched themselves were trapped. Possessions spiked, and lenders tightened the screws. The Mortgage Market Review in 2014 killed off the wild west, bringing in affordability checks that would’ve made 2005 lenders laugh. No more “state your income, we’ll nod”.
Looking back, 2005 feels like a fever dream. We thought we were invincible, riding a wave of cheap credit and soaring prices. I loved my interest-only deal, but I wince now at how exposed we all were. Mervyn King might’ve been a titan, but even titans couldn’t stop the bubble bursting. Today’s market feels like a different beast – cautious, regulated, broker-driven. House prices are higher, but growth is sluggish. Lenders are pickier, and borrowers are warier. Maybe we’ve learned our lesson, or maybe we’re just in a different kind of bubble, waiting for the next “worst of times” to remind us how fragile it all is. In the end, 2005 was both heaven and the other way. It gave me my first home, my first taste of the industry’s buzz. But it also sowed the seeds of a crash that changed everything.
Here’s to hoping 2025’s mortgage market keeps its head, because I’m not sure I could handle another ride like that.
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