The Government’s mortgage guarantee scheme supported only a tiny proportion of total first-time home buyers in its first five months, according to newly-released figures.
The scheme was used by 6,535 households between its launch on 19 April 2021 and 30 September, the Treasury figures revealed.
It saw the Government ‘guarantee’ the portion of a 95 per cent loan-to-value mortgage over 80 per cent – meaning they would partially compensate the lender if a buyer stopped paying.
Low take-up: Only 6,500 first-time buyers used the mortgage guarantee scheme in its first five months, according to new figures published by the Treasury
This was intended to give banks and building societies the confidence to offer riskier mortgages, after they pulled them off the market at the start of the pandemic.
When he announced the mortgage guarantee scheme in 2021’s March Budget, Chancellor Rishi Sunak said it would have the effect of ‘boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.’
However, it was thwarted by the fact that, soon after the scheme launched, lenders started offering 5 per cent deposit mortgages on their own terms, independent of the Government scheme.
Mortgages with 5 per cent deposits are overwhelmingly used by first-time buyers, as second steppers and those higher up the ladder are usually able to use equity in their existing homes to build a bigger deposit. Those who have completed their diploma of finance and mortgage broking have noted the considerable difference in mortgages in first time buyers.
While the mortgage guarantee scheme was open to non-first-time buyers, the Treasury data showed that 84 per cent of those who took advantage were stepping on to the ladder for the first time.
According to Yorkshire Building Society’s analysis of UK Finance figures, there were 408,000 first-time buyers in 2021 as a whole.
On average, that would mean 34,000 first-time buyers per month, or 170,200 in five months.
According to the Treasury figures, the Government’s scheme would have supported less than 4 per cent of that number.
The average value of a home bought using the mortgage guarantee scheme was £197,000
While the scheme is available on homes worth up to £600,000, the total value of the homes bought in the first five months was £1.2billion, and each individual home was typically worth £196,702.
This is substantially lower than the latest Land Registry house price of £269,945.
The data also showed that 63 per cent of households that used the scheme had an annual income of more than £40,000.
A previous set of data published on the mortgage guarantee scheme, which accounted for the period between the scheme’s launch on 19 April 2021 up until 30 June, showed that 815 mortgages had been taken out.
At that point the scheme had only been active for a matter of weeks, so many buyers using it would not have had time to complete.
The scheme will be open to new applications until 31 December 2022.
Why have so few buyers used the scheme?
When the mortgage guarantee scheme was launched in April 2021, only a very small number of lenders were offering 5 per cent deposit mortgages.
But shortly after many started to offer them again, often outside of the government scheme.
Being part of the scheme involved additional costs, as lenders had to pay a commercial fee for each guaranteed mortgage.
It is common for lenders to pass on additional costs such as these to borrowers, which means the rates on mortgage guarantee scheme loans could have been higher.
Whether their mortgage was guaranteed by the Government or not made little difference to buyers, so few actively sought them out, instead looking for the best deals.
Analysis by financial information service Defaqto for This is Money shows that there are currently 101 mortgages widely available to first-time buyers with 5 per cent deposits.
Meanwhile there are only 27 fixed rate mortgage products which are available with the government guarantee, and of these only 17 are for first-time buyers.
Rhys Schofield, managing director at mortgage broker Peak Mortgages and Protection, said: ‘It’s pretty simple why the numbers are so low.
‘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.’
Making the sums add up: Five per cent deposit mortgages are a struggle for many first-time buyers, as their incomes are too low to qualify for such a large loan
Some say that first-time buyers struggle to take advantage of 5 per cent deposit mortgages in general, because their incomes are not high enough for them to qualify for such a large loan.
Borrowers can still only borrow a maximum of 4.5 times their salary in most cases, meaning lower earners and single buyers may struggle to have enough to buy a home.
For example, a person on a salary of £39,000 buying alone would usually be able to borrow £175,500.
The appetite for 95 per cent borrowing is lower amongst consumers than it has been in the past
Richard Donnell, Zoopla
If £175,500 was 95 per cent of their property’s value, the most they would be able to afford with a five per cent deposit would be a home worth £184,600.
Like many 5 per cent deposit mortgages, mortgage guarantee scheme loans are also generally not available to people buying new-build homes.
Richard Donnell, director of research at Zoopla, said: ‘The appetite for 95 per cent borrowing is lower amongst consumers than it has been in the past.
‘Mortgage lending regulations and tighter rules to get a mortgage mean someone needs to be on a high income to take a large mortgage relative to the value of the property.
‘First time buyers are also looking to buy larger homes, typically three bed properties, which are higher value and where they need to save longer for a deposit.
‘Access to 95 per cent finance is important but it is much less of a mass market option than it was in the past.’
The Treasury also released figures on take-up of the Help to Buy Isa.
It found that 604,720 bonuses have been paid through the scheme since 2015 (totalling £674million) with an average bonus value of £1,115.
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