Traditional Approach to UK Mortgages

 

During the Mutual Building Society hay days, up to and including the 1970’s, a mortgage to buy your house was a comparatively easy choice.

You saved your deposit with the society you hoped would provide a mortgage. If you had a small deposit you could insure the difference between say 75% a society would lend and the 95% that you needed.

A 25 year term was fairly standard as was a straight repayment mortgage, although endowments were on offer they were not for the conservative.  Borrowing levels were restricted, in my case I was restricted to 2.5 times salary but I had nothing left to pay extra into an endowment anyway.

Brand loyalty was easier because there wasn’t the multiple choice from a large variety of financial organisations and the aggressive marketing that seems all the vogue.

Even though the expected length of time between house moves was 7 years there were no serious exit penalties. One thing annoyed me and that was interest was calculated annually at the beginning of the year and that slowed down the speed at which you reduced the debt and was a very high rate towards the end of the term. This is still around today on some mortgages.

Many mutual societies have fallen for the  privatisation market forces model. All the new shareholders want dividends and  rapid profit growth,  The new board and management teams will be on larger remuneration and bonuses than would have been acceptable under a locally focused mutuality.

My conclusions for new borrowers are to favour the simple and clear basic deal. Go to long established specialists not you local grocer, brokers friend or fringe finance house. Marketing ploys come and go but you are in the property mortgage game for the long term. If too much is spent on marketing and a multiplicity of costly deals, offers and rates then you the consumer has to pay.

 

See: Types of Mortgages

By: Adam Sedgewick