Brokers have dubbed HM Treasury’s 95 per cent loan-to-value mortgage guarantee scheme a “damp squib” which came to the market “too late”.
According to data from HM Revenue and Customs, published today (February 17), the government scheme, launched last year to draw mortgage lenders back to the smaller deposit market, helped 6,535 mortgages complete between April and September 2021.
The value of these mortgages totalled £1.2bn over six months. In the last three months, they totalled £1.01bn, which is equivalent to just 1.3 per cent of the £78.9bn in mortgage commitments made in the third quarter of 2021.
The latter three months - July, August and September - saw the majority of the scheme’s activity. This is because during the first three months of the scheme, just 812 of these mortgages worth £185mn were completed.
"There are a couple of reasons the mortgage guarantee scheme has been a damp squib,” said Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub.
“Firstly, the main benefit was for lenders, not borrowers. And secondly, it was running alongside the much better known Help to Buy Equity Loan Scheme.
“Ultimately, borrowers simply weren't as familiar with it."
When it launched, the Treasury said the scheme aimed to help first-time buyers or homeowners obtain a mortgage with a 5 per cent deposit to buy a property of up to £600,000.
The mean value of a property purchased through the scheme was £196,702, versus the national average house price of £269,945.
But it was also targeted at lenders, as Cox explained. After an exodus of lenders from the 95 per cent loan-to-value market during the pandemic, the government was wary it needed to do something to encourage more high street lenders to take on the risk of smaller deposit holders once more.
Lloyds, Santander, Barclays, HSBC, NatWest and Virgin Money all took part in the scheme.
But Paul Neal at Derbyshire-based Missing Element Mortgage Services argued many lenders “were pretty savvy” and had already launched their own 95 per cent loan-to-value deals prior to the government’s scheme launch.
“As ever with government schemes, it's a simple case of not enough and too late,” said Neal. “Also, the majority of the lenders offering it only made it available to those who had very good credit, which instantly excludes many first time buyers."
Rhys Schofield, managing director at Peak Mortgages and Protection, agreed that timing was key for the scheme’s success.
"It's pretty simple why the numbers are so low,” said Schofield. “The scheme was floated with much bluster earlier on in the pandemic and by the time it was actually up and running several months later most lenders were offering 5 per cent deals anyway outside the scheme without the government hoops and costs for the lender to jump through."
Accord was one of the first lenders to launch 95 per cent loan-to-value products back into the UK market.
Scott Taylor-Barr of Carl Summers Financial Services said having spoken to various lenders who chose to ‘go it alone’ and launch 95 per cent loan-to-value deals without the government mortgage guarantee scheme, it simply came down to cost.
“The government scheme was too expensive compared to taking the risk on themselves,” he said.
A Treasury spokesperson told FTAdviser: “The effects of Covid-19 left many lenders reluctant to independently offer 95 per cent mortgages. In response, we launched the mortgage guarantee scheme to help increase the supply."
Contrary to brokers' comments, the government spokesperson said the scheme had "successfully reinvigorated the market with the availability of 95 per cent mortgage products dramatically increasing".
FTAdviser understands there were eight 95 per cent loan-to-value mortgage products available from two lenders nationwide in January 2021. By the end of December 2021, around 50 lenders were offering around 350 of these mortgage products.
ruby.hinchliffe@ft.com
