Sick Man of Europe Gets Better

While the UK had a different rental model from that of the US things were about to start changing. Change always brings opportunity and yet like today most people are resistant to change and miss out on the early opportunities only to say later “I wish I had acted sooner”

As we come to the end of the 1970’s our socialist experiment seems to be running out of steam. High inflation peaking at over 25%, high interest rates with a bank rate at 14%. Unions so powerful that they could bring down governments as they did in 1974. We in the UK entered the winter of discontent 1978/79 and were known as the sick man of Europe where the International Monetary Fund had to come in and rescue us.

A severe winter that saw multiple public and private sector strikes that left the dead unburied and rubbish uncollected in the streets with rats crawling over it. In February 1979 the Prime Minister Jim Callaghan was met at the airport after flying in from a summit in the Caribbean where pictures were broadcast back to UK television screen showing him in a Hawaiian style shirt basking in the sun and asked what he was going to do about the crisis. The next day the headline one paper ran was “Crisis, what Crisis” It seems like the government was out of touch with the people and wanted change. Does this sound familiar?

But change did come. In May 1979 with the election of Margaret Thatcher. A year later in 1980 she passed a law giving council house tenants the right to buy their council houses. What is rarely understood is that the right to buy existed as far back as 1936, although it required ministerial approval. A more recent policy was introduced by Edward Heaths government of 1970-1974. It was however the introduction of large discounts, up to 50% that really fuelled the sale of council homes as it made them cheaper to buy on a mortgage than to rent.

The mortgage market was then deregulated in 1982, but it was not until 1984 that the banks really entered the mortgage market in earnest. Then in 1988 the Housing Act in England and Wales and a separate act in Scotland introduced short term tenancies which relieved landlords the burden of having lifetime tenants.

In 1996 the banks introduced specialist buy to let mortgages and people started to look at property investment as an alternative to their pension plans. However, the real driver for growth in the number of buy to let properties came with the rise in training companies using ideas imported from the US now that the UK had a similar rental model for its single lets.

During this period, we also saw the influx of foreign investment which had been facilitated by the abolition of exchange controls in the early days of the Thatcher government in 1979. It meant that we could take money out of the country, but it also meant that investors could feel quite relaxed about bringing money into the country as they would be able to remove it if they so desired. This benefited the wider Economy and we became one of the most desirable places in the world with a higher rate of corporation tax at 52% in 1978 coming down to 25% by 1988 and eventually 21% by 1997.

Deregulation increased mobility and changes in the family unit fuelled the need for more rental properties. The advance of globalisation which started with the fall of the Berlin Wall and we see the explosion of the buy to let sector.