Brokers have called HM Treasury’s 95% loan-to-value mortgage guarantee scheme a “wet firecracker” that came to market “too late”.
According to data from HM Revenue and Customs, released today (17 February), the government scheme, launched last year to bring mortgage lenders back into the smaller deposit market, has helped 6,535 mortgages to be made between April and September 2021.
The value of these mortgages was £1.2 billion over six months. Over the past three months they have totaled £1.01bn, equivalent to just 1.3% of the £78.9bn of mortgage commitments taken out in the third quarter of 2021.
The last three months – July, August and September – have seen the majority of program activity. Indeed, in the first three months of the scheme, only 812 of these mortgages worth £185million were completed.
“There are several reasons why the mortgage guarantee scheme has been a wet squib,” said Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub.
“First, the main benefit was for lenders, not borrowers. And second, it ran alongside the much better known Help to Buy Equity Loan Scheme.
“At the end of the day, borrowers just weren’t as familiar with it.”
When it launched, the Treasury said the scheme aimed to help first-time buyers or homeowners secure a mortgage with a 5% down payment to buy a property of up to £600,000.
The average value of a property purchased under the scheme was £196,702, compared to a national average house price of £269,945.
But it also targeted lenders, as Cox explained. After an exodus of lenders from the market at 95% LTV during the pandemic, the government feared it had to do something to encourage more high street lenders to take on the risk of small deposit holders again.
Lloyds, Santander, Barclays, HSBC, NatWest and Virgin Money have all participated in the program.
But Paul Neal, of Derbyshire-based Missing Element Mortgage Services, argued that many lenders ‘were pretty savvy’ and had already launched their own 95 per cent value loan deals before the government’s scheme was launched.
“As always with government diets, it’s a simple case of not enough is too late,” Neal said. “Also, the majority of lenders who offer it have only made it available to those with very good credit, which instantly rules out many first-time buyers.”
Rhys Schofield, managing director of Peak Mortgages and Protection, agreed that timing was key to the program’s success.
“It’s pretty simple why the numbers are so low,” Schofield said. “The scheme was launched with a lot of bluster earlier in the pandemic and by the time it was actually operational several months later most lenders were offering 5% deals outside the scheme anyway without the hoops of the government and the costs for the lender to jump through.”
Accord was one of the first lenders to launch 95% loan-to-value products in the UK market.
Scott Taylor-Barr of Carl Summers Financial Services said that after speaking to various lenders who had chosen to “go it alone” and start 95% value loan deals without the government’s mortgage guarantee scheme, it simply came down to cost.