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United Kingdom[edit]

The mortgage industry of the United Kingdom has traditionally been dominated by building societies, but from the 1970s the share of the new mortgage loans market held by building societies has declined substantially. Between 1977 and 1987, the share fell from 96% to 66% while that of banks and other institutions rose from 3% to 36%. There are currently over 200 significant separate financial organizations supplying mortgage loans to house buyers in Britain. The major lenders include building societies, banks, specialized mortgage corporations, insurance companies, and pension funds.
In the UK variable-rate mortgages are more common than in the United States.[19][20] This is in part because mortgage loan financing relies less on fixed income securitizedassets (such as mortgage-backed securities) than in the United States, Denmark, and Germany, and more on retail savings deposits like Australia and Spain.[19][20] Thus, lenders prefer variable-rate mortgages to fixed rate ones and whole-of-term fixed rate mortgages are generally not available. Nevertheless, in recent years fixing the rate of the mortgage for short periods has become popular and the initial two, three, five and, occasionally, ten years of a mortgage can be fixed.[21] From 2007 to the beginning of 2013 between 50% and 83% of new mortgages had initial periods fixed in this way.[22]
Home ownership rates are comparable to the United States, but overall default rates are lower.[19] Prepayment penalties during a fixed rate period are common, whilst the United States has discouraged their use.[19] Like other European countries and the rest of the world, but unlike most of the United States, mortgages loans are usually notnonrecourse debt, meaning debtors are liable for any loan deficiencies after foreclosure.[19][23]
The customer-facing aspects of the residential mortgage sector are regulated by the Financial Conduct Authority (FCA), and lenders' financial probity is overseen by a separate regulator, the Prudential Regulation Authority (PRA) which is part of the Bank of England. The FCA and PRA were established in 2013 with the aim of responding to criticism of regulatory failings highlighted by the financial crisis of 2007–08 and its aftermath.[24][25][26]

Continental Europe[edit]

In most of Western Europe (except Denmark, the Netherlands and Germany), variable-rate mortgages are more common, unlike the fixed-rate mortgage common in the United States.[19][20] Much of Europe has home ownership rates comparable to the United States, but overall default rates are lower in Europe than in the United States.[19]Mortgage loan financing relies less on securitizing mortgages and more on formal government guarantees backed by covered bonds (such as the Pfandbriefe) and deposits, except Denmark and Germany where asset-backed securities are also common.[19][20] Prepayment penalties are still common, whilst the United States has discouraged their use.[19] Unlike much of the United States, mortgage loans are usually not nonrecourse debt.[19]
Within the European Union, covered bonds market volume (covered bonds outstanding) amounted to about EUR 2 trillion at year-end 2007 with Germany, Denmark, Spain, and France each having outstandings above 200,000 EUR million.[27] Pfandbrief-like securities have been introduced in more than 25 European countries—and in recent years also in the U.S. and other countries outside Europe—each with their own unique law and regulations.[10]

Recent trends[edit]

Mortgage Rates Historical Trends 1986 to 2010
On July 28, 2008, US Treasury Secretary Henry Paulson announced that, along with four large U.S. banks, the Treasury would attempt to kick start a market for these securities in the United States, primarily to provide an alternative form of mortgage-backed securities.[28] Similarly, in the UK "the Government is inviting views on options for a UK framework to deliver more affordable long-term fixed-rate mortgages, including the lessons to be learned from international markets and institutions".[29]
George Soros's October 10, 2008 Wall Street Journal editorial promoted the Danish mortgage market model.[30]


Mortgages in Malaysia can be categorised into 2 different groups: conventional home loan and Islamic home loan. Under the conventional home loan, bank normally charges fixed interest rate or variable interest rate, or both.[31] These interest rates are tied to Base Rate (individual bank's benchmark rate).
For Islamic home financing, it follows the Sharia Law and comes in 2 common types: Bai’ Bithaman Ajil (BBA) or Musharakah Mutanaqisah (MM). Bai' Bithaman Ajil is when the bank buys the property at current market price and sells it back to you at a much higher price. Musharakah Mutanaqisah is when the bank buys the property together with you. You will then slowly buy the bank's portion of the property through rental (whereby a portion of the rental goes to paying for purchase of a part the bank's share in the property until the property comes to your complete ownership).

Islamic countries[edit]

Main article: Islamic economics
Islamic Sharia law prohibits the payment or receipt of interest, meaning that Muslims cannot use conventional mortgages. However, real estate is far too expensive for most people to buy outright using cash: Islamic mortgages solve this problem by having the property change hands twice. In one variation, the bank will buy the house outright and then act as a landlord. The homebuyer, in addition to paying rent, will pay a contribution towards the purchase of the property. When the last payment is made, the property changes hands.[clarification needed]
Typically, this may lead to a higher final price for the buyers. This is because in some countries (such as the United Kingdom and India) there is a stamp duty which is a tax charged by the government on a change of ownership. Because ownership changes twice in an Islamic mortgage, a stamp tax may be charged twice. Many other jurisdictions have similar transaction taxes on change of ownership which may be levied. In the United Kingdom, the dual application of stamp duty in such transactions was removed in the Finance Act 2003 in order to facilitate Islamic mortgages.[32]
An alternative scheme involves the bank reselling the property according to an installment plan, at a price higher than the original price.
Both of these methods compensate the lender as if they were charging interest, but the loans are structured in a way that in name they are not, and the lender shares the financial risks involved in the transaction with the homebuyer.[citation needed]


Bali, Indonesia is an exception to the rule of most home purchase being funded by a mortgage. Instead, most properties there are paid with cash due to the lack of available mortgages.[33]

Mortgage insurance[edit]

Main article: Mortgage insurance
Mortgage insurance is an insurance policy designed to protect the mortgagee (lender) from any default by the mortgagor (borrower). It is used commonly in loans with a loan-to-value ratio over 80%, and employed in the event of foreclosure and repossession.
This policy is typically paid for by the borrower as a component to final nominal (note) rate, or in one lump sum up front, or as a separate and itemized component of monthly mortgage payment. In the last case, mortgage insurance can be dropped when the lender informs the borrower, or its subsequent assigns, that the property has appreciated, the loan has been paid down, or any combination of both to relegate the loan-to-value under 80%.
In the event of repossession, banks, investors, etc. must resort to selling the property to recoup their original investment (the money lent), and are able to dispose of hard assets (such as real estate) more quickly by reductions in price. Therefore, the mortgage insurance acts as a hedge should the repossessing authority recover less than full and fair market value for any hard asset.

See also[edit]