The government’s 95 per cent loan-to-value mortgage deposit scheme has attracted just 812 home buyers, representing 0.7 per cent of all residential mortgage completions in the UK between April and June.
The scheme, introduced earlier this year to encourage lenders to offer higher loan-to-value mortgages following the pandemic, includes a government guarantee on mortgage loans where the borrower has a deposit of less than 10 per cent.
The total value of loans supported by the scheme at the end of June was £185m, with the properties these loans financed worth £196m in total.
In a report published by the Treasury yesterday (December 2), the government said these small numbers were to be expected, “owing to the infancy of the scheme at this point in time and the average length of time to complete a house purchase”.
Some 80 per cent of those who have used the scheme so far are first-time buyers.
Source: HM Treasury
Karen Noye, a mortgage expert at Quilter, said whilst anything that helps generation rent get on the housing ladder should be applauded, there was “a very real concern” that people using the scheme could end up in negative equity if they bought at the height of the house prices boom and then there is a significant deflation in prices.
She said: “If house prices do drop, as is predicted now the stamp duty holiday is completely gone, buyers who have used the guarantee scheme might face an uphill struggle if they want to sell their homes as they will need to cover all the negative equity to redeem the existing mortgage, moving costs and a deposit for the new purchase.
“So while this scheme is well meaning there could be some serious ramifications if the housing market cools considerably over the next months and years.”
The government also released the latest Help to Buy statistics yesterday, which show there were 339,347 properties sold through Help to Buy Equity Loan scheme since the scheme’s inception.
“While once again this scheme is clearly well-meaning, its range of flaws have meant that it has not been anywhere near as successful as it could have been,” said Noye.