The UK housing finance system is still recovering from the credit and financial crisis of 2007–2008. Some features of the system have made it particularly vulnerable to this crisis, notably the extent to which lenders have been reliant on the money markets and securitisation to enable them to lend and the generosity of loan conditions during the boom period, especially after 2005. Other features have helped the system to weather the crisis—notably the relatively low rate of transactions and the prevalence of variable rate and tracker mortgages, which meant that many existing borrowers saw their interest payments fall. At the same time the prime objective of the mortgage market—supporting sustainable owner-occupation—has been undermined as first-time buyers have found it more and more difficult to obtain mortgage funding. The objective of this paper is to assess the robustness of the UK housing finance system not only in the context of the current crisis but also in comparison with earlier crises. We discuss the fundamental issues of volatility and longer-term house price developments both before and after liberalisation. To address these issues the paper first looks at the history of housing market volatility, then at the details of the period since 2007 and finally at future prospects.
