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A Biography of Mortgages
From the French legal term meaning “dead pledge”, mortgages are now such an integral part of our lives that the word has lost the gravitas implicit in that original meaning. It’s still a heavy commitment though, and for most people it really will mean debt until, if not death, then very close. Home ownership is now so important to people that they are prepared to build their lives around paying off a mortgage.
The concept of the mortgage is as ancient as moneylenders themselves. Common law has it that a mortgage is a conditional loan with which to buy land.
The high value of property has always put it beyond the reach of most people; lending money for the purpose of buying property is therefore as old as money itself. But for the earliest evidence of a mortgage system in Britain, we’ll start in 1190…
In the 12th century, English common law protected creditors by allowing them an interest in their debtors’ property. The title on the deed would still be in the name of the debtor, but if they failed to pay the loan back, the lender could sell the property. If the loan wasn’t repaid, the property was forfeited – or “dead”. If it was repaid, the pledge would expire, hence “dead pledge” or mortgage. You got more for your money back in merry old England, as ownership rights extended from the centre of the earth to the sky. Nowadays, with space at a premium, you generally only get surface rights. So that underground extension into the earth’s mantle needs rethunk, I’m afraid.
As economies grew over the centuries, and governments understood the importance of home ownership, it became easier for people to obtain mortgages. In the US, more and more people bought their own land and property, although a mortgage was still out of reach for many average Americans. Then the depression hit.
Fannie Mae
The great depression during the 30’s acted as a catalyst for fairer mortgage practice. Previously, rates were localised, and the cost of loans varied throughout the country, but 1938 saw the introduction of the Federal National Mortgage Association – known as Fannie Mae. The government began insuring loans against defaulting, which meant that lenders were at less risk, and therefore happier to lend more freely. Fannie Mae centralised the pool of funds for mortgage lenders, ensuring that everyone could buy at the same interest rates. Consequently, terms and underwriting guidelines became standardised.
The mortgage market was becoming stable. As interest rates rose, the term of mortgages was reduced, sometimes to a one or three year deal. Mortgages were made more widely available for low-income families. Now there are myriad loan offers out there, and lenders find ever new ways to generate money from property, whilst consumers benefit in the long-term.
Now you know a little more about mortgages, you may find it easier to find the right one for you. Santander have a mortgage calculator service, which will help you look for homeowner loans.
