Imagine a World Without Mortgages…

Dear Reader,

Every few years or so we refinance our bank debt, or negotiate new terms on recently purchased properties. It can be a costly, drawn out process, but obviously very important to how we run 10Ant Capital. Going through this a couple of years ago got me thinking about what the property market would look like if the mortgage had never been invented. So come with me and imagine a world without mortgages…

It sounds like a daft hypothetical (and it is), but stay with me, because once you start pulling on the thread it unravels almost everything we take for granted about housing in this country. The mortgage is so woven into the fabric of British life that we barely notice it. We talk about "getting on the ladder", "remortgaging", "fixing for five years" as if these were laws of nature. They are not. They are the product of one rather clever financial invention, and if you remove it, the whole picture changes beyond recognition.

So pour yourself a coffee, (something stronger might be required!) and indulge me for a few minutes as I take you on a little tour of an alternative Britain (apologies if that sounds a little 2016y…).

First, what actually is a mortgage?

Before we bulldoze it, let's be clear about what we're bulldozing. At its simplest, a mortgage is a loan secured against a property. You put down a deposit, a lender stumps up the rest, and you pay it back (with interest, naturally) over twenty or thirty years. If you stop paying, they take the house. The word itself comes from Old French: mort (dead) and gage (pledge), literally a "dead pledge", because the deal "dies" either when you've paid it off or when the lender repossesses. Very cheerful.

The mortgage in something like its modern, accessible form really took off with the building societies. The very first, Ketley's, was set up in a Birmingham pub in 1775 (where else would a great British institution begin?). The idea was beautifully simple: a group of working men pooled their savings, and when the pot was big enough, they drew lots or took turns to build or buy a house. Once every member was housed, the society wound itself up. These were called "terminating" societies, and they were a genuinely brilliant bit of grassroots financial engineering.

Over the following century these mutual savings clubs evolved into the permanent building societies and, eventually, the high-street lenders we know today. And with them came the single most important development in British social history that nobody ever talks about: the ability for an ordinary person, on an ordinary wage, to own the roof over their head.

Take that away, and here's what happens:

A nation of renters, again

Let's start with the headline. Without the mortgage, the vast majority of British people would simply never own a home. Full stop.

Think about it. The average house in this country costs many multiples of the average salary. Without borrowing, you would need to save the entire purchase price in cash. For most working families, that is the work of a lifetime, and by the time you'd saved it, you'd be handing the keys to your grandchildren rather than enjoying them yourself.

So who would own? The same people who owned everything in the eighteenth and nineteenth centuries: the wealthy, the landed, and those lucky enough to inherit. We would, in effect, have rewound the clock to the Britain of Downton Abbey: a small property-owning class at the top, and a vast renting population beneath them paying their living costs to a landlord every month with nothing to show for it at the end.

Homeownership in the UK today sits at roughly two-thirds of households. In our mortgage-free alternative reality, I'd wager that number would be closer to a quarter, if that. We would look far more like Germany or Switzerland, where renting for life is the cultural norm and owning your own home is the exception rather than the expectation. (Worth noting that those countries make renting genuinely pleasant and secure, something we have historically been rather bad at.)

What happens to house prices?

Here's where it gets interesting, and where a lot of people's instincts lead them astray.

The knee-jerk assumption is that without mortgages, houses would be dirt cheap. After all, if buyers can only spend cash, surely prices have to come crashing down to whatever people have in the bank?

There's truth in that, but it's only half the story.

Yes, nominal prices would be dramatically lower. A market where buyers are limited to cash is a market with far less money chasing the same bricks and mortar. A huge chunk of what drives house prices up is the availability of credit. The more people can borrow, the more they can bid, and the higher prices climb. Choke off the credit and you choke off the price growth. Much of the eye-watering inflation in UK house prices over the last forty years is, at its core, a story about cheaper and more available borrowing.

But, and it's a big but, low prices don't help you much if you still can't afford them. A £100,000 house is no use to a family that has £8,000 in savings and no way to bridge the gap. The houses might be "cheap", but they'd be cheap in the way a vintage Aston Martin is cheap to a teenager: technically within reach of a millionaire, practically irrelevant to everyone else.

So you'd end up with a strange market: lower prices on paper, but with ownership concentrated in the hands of those who already have capital. The gap between the haves and have-nots wouldn't shrink. If anything, it would only get bigger.

The death of buy-to-let (and 10Ant Towers)

The entire buy-to-let industry, the thing that keeps the lights on at 10Ant Towers, is built on leverage. The model is simple: use a deposit and a mortgage to control an asset worth far more than your initial outlay, let the rent cover the borrowing costs, and benefit from the capital growth over time. Take away the mortgage and that model collapses overnight.

In a cash-only world, we couldn't have built a portfolio of around 50 units across London and the South East from a standing start. Nobody could. Property investment would become the exclusive playground of the already-rich, the institutions, and the pension funds: people and entities sitting on enormous piles of cash with nowhere better to put it. The plucky individual landlord, the couple with a single buy-to-let topping up their pension, the small family operation building something over a generation: all of them vanish.

So how would people cope?

Humans are nothing if not resourceful, and a mortgage-free Britain wouldn't simply throw up its hands and give up on housing. We'd find workarounds, and some of them would look very familiar, because they're how things worked before the mortgage became universal.

Multigenerational living would make a comeback. Three generations under one roof, pooling resources, sharing costs. The "boomerang generation" living with mum and dad wouldn't be a punchline; it would be the default.

Family lending would do the heavy lifting. The Bank of Mum and Dad (and increasingly the Bank of Grandma and Grandpa) is already one of the biggest lenders in the country. In our alternative world it would be the lender, full stop. Which, of course, only helps you if your family happens to have money, baking inequality in even harder.

The building societies would still exist, just in their original form. Those terminating savings clubs from 1775 would still be doing the rounds: groups of people pooling cash to house each other one by one. Slow, communal, and limited, but better than nothing.

Employer-provided housing would return. The old mill towns and railway villages (Saltaire, Bournville, Port Sunlight) were built by employers to house their workers. Strip out private ownership and you'd likely see a revival of "the company house", with all the loss of personal freedom that implies (fall out with the boss, lose your home).

And the state would have to step in, massively. With private ownership off the table for most, the pressure on government to provide housing would be colossal. Think council housing on a scale that would dwarf even the post-war building boom. Whether you see that as a utopia or a nightmare probably depends on which newspaper you read.

The one genuine upside

I've painted a fairly bleak picture, so let me offer the other side of the (mortgage) ledger, because it's only fair.

A mortgage-free Britain would be a far more financially stable one. Almost every major property-driven economic crisis you can name (the early-90s negative equity disaster, Northern Rock and the 2008 crash) has its roots in mortgage lending. When you build an entire economy on the back of borrowed money secured against property, you create a beautiful machine for amplifying booms and, eventually, busts.

Take the mortgage away and you take away most of that volatility. No negative equity. No repossession crises. No "house prices fell 20% and dragged the whole banking system down with them." Property would be a sleepy, stable, unexciting asset class, owned outright or not at all. Boring, but boring is sometimes underrated. Just ask anyone who lived through 2008.

So, was the mortgage a good thing?

Here's where I land, for what it's worth (and as ever, I don't claim my way of thinking is the only way).

The mortgage is, on balance, one of the great democratising inventions of the modern age. For all its faults (and there are many, from fuelling unaffordable prices to the misery of the credit crunch) it did something genuinely radical. It took homeownership, which for most of modern human history was the preserve of the wealthy, and put it within reach of the ordinary family. It turned tenants into owners. It let a generation build wealth that they could pass on. It let me analyse a wreck of a flat in Margate, borrow against it, do it up, and build a business. (You can read about that particular flat in an earlier blog; it was, and I quote myself, "completely and utterly destroyed.")

It's fashionable to grumble about the property ladder, and goodness knows it has its problems. But the alternative, a Britain where the only people who own homes are the people who already had money, is a far colder place. As we like to say at 10Ant Towers, you make your money when you buy, not when you sell, but the mortgage is the thing that lets most of us get to the buying in the first place.

So the next time you're cursing your monthly payment, spare a thought for that group of Birmingham working men in a pub in 1775, pooling their pennies to house one another. They started something rather wonderful.

One number to chew on before I let you go: of the roughly two-thirds of UK households who own their home today, the overwhelming majority did so with a mortgage. Remove it, and you don't just change the property market; you change who gets to own a piece of Britain at all.

As always, if anyone fancies some property advice or simply a chat about daft hypotheticals, do get in touch.

Usual caveat: I'm a property investor, not a financial adviser or an economist. This is a bit of fun and a thought experiment, not advice. Always speak to a qualified professional before making any financial decision.