Mortgage rates doubling. Home owners in despair. Thousands of homes being repossessed.
Sounds familiar? This was Britain in 1990. I was running Nationwide Building Society’s press office and had the job of announcing that February that mortgage rates were going up to 15.4 percent. Just two years earlier the home loan rate was just over 8 percent.
The 1980s were a golden time for home ownership in Britain. Prime minister Margaret Thatcher championed a home-owning democracy, and the proportion of people owning their own home rose from 56 percent in 1980 to 67 percent in 1990. (Source: Statista.) But the housing boom crashed after Thatcher and her chancellor Nigel Lawson allowed the economy to overheat, and interest rates almost doubled in just over 18 months, culminating in that eye-watering 15.4 percent mortgage rate.
As spokesman for Britain’s third largest mortgage lender, I was busy explaining the impact on borrowers (and savers). Fixed rate mortgages were in their infancy in the UK, with the first launched in 1989, and I can’t remember Nationwide offering one back then. Many borrowers were on annual review mortgage schemes, which fixed the monthly payment but not the interest rate for 12 months. If interest rates soared, the borrower had to pay back the extra money owed later.
Major news: a mortgage rate cut
Friday 5 October 1990 was proving a quiet day in Nationwide’s press office in Holborn, London. I was on my own, but was still able to escape for an hour’s lunchtime football on Coram’s Fields. Amazingly, I scored a hat-trick for only the second time in my life. When I got back to my office I was looking forward to a quiet end to the week. Then the phone rang.
It was Nationwide’s chief executive, Tim Melville-Ross. “John Major [chancellor of the exchequer] has announced that Britain is joining the European Exchange Rate mechanism. The board has agreed to cut our mortgage rate. Please make the announcement.”
I started typing the news release. But I never got the chance to finish it as the phones were going crazy as the BBC, ITV and the national press wanted to know if Nationwide was going to be the first to cut rates. Instead, I gave the details of the rate cut to the media and arranged for Tim to be interviewed on ITV’s evening news and other bulletins. I also arranged filming at a Nationwide estate agency branch, and provided examples of the saving for typical borrowers. (Strikingly, the biggest mortgage I quoted for was £60,000 – close to the average price of a house in the UK that year.)
The relief was palpable. Homeowners would at last see their monthly costs going down, rather than up. But that was the extent of the good news, as unemployment climbed for another two years. to 10 percent and more than 75,000 homes were repossessed in 1991 alone.
First with the news
The media remarked that Nationwide was quick off the mark in announcing a rate cut. But a month after the dramatic news, I responded to a puff piece in PR Week magazine suggesting that Barclays had led the news agenda that day. I pointed out that only Nationwide shared the news homeowners were craving – that their cost of living would be eased with a mortgage rate cut.
The ERM saga
John Major won a major battle over Margaret Thatcher by insisting – alongside foreign secretary Douglas Hurd – that Britain enter the exchange rate mechanism. It was a sign of her declining authority after the massive blunder of the poll tax. Within two months she was gone and Major himself was prime minister.
Yet the ERM decision ultimately consigned Major to a crushing defeat in the 1997 general election. When Britain joined the ERM, it did so at an unsustainably high exchange rate. By the summer of 1992, the government was desperately trying to defend the pound against speculators. In mid-September, the game was up and Major and chancellor Norman Lamont humiliatingly conceded defeat on Black Wednesday, taking Britain out of the ERM. The government’s reputation was shattered, never to recover, despite a sustained economic recovery. Judging from this precedent, there’s no way back for the Tories after the economic and political disaster of the Truss premiership.
PS: technically, houses are ‘possessed’ by lenders and not repossessed as the lender never possessed the property in the first place. When I joined Nationwide in 1986 I was told in no uncertain terms not to use the incorrect term. But repossessions has now become the accepted term.
PS2: Nationwide used the brand name Nationwide Anglia for four years after its merger with Anglia Building Society. Anglia’s home town paper, the Northampton Chronicle and Echo, actually called it Anglia Nationwide in its coverage in an act of editorial petulance. It must have been furious when the society dropped the Anglia name for good in 1991.