The mortgage guarantee scheme was reintroduced in April 2021 to encourage lenders to offer 95% loan-to-value (LTV) mortgages and allow people to get on the housing ladder with less than a 10% deposit.
Data from HM Treasury, however, showed that only 6,535 mortgages were completed with support of the scheme up to the end of September 2021. Of these, 84% of purchases were by first-time buyers.
Read more: Moneyfacts: Borrowers should consider deals outside of Mortgage Guarantee Scheme
Karen Noye, a mortgage expert at Quilter Financial Advisers, said the number paled in comparison to that of first-time buyers looking to get a foot on the property ladder.
“This low figure exposes a scheme that is clearly not helping generation rent as much as hoped,” she said.
Noye described the earlier figures up to June 2021, when just 812 mortgages used the scheme, as “disappointing”, but recognized that the initiative had only been operating for a couple of months.
She cited “incredibly high” house prices as one of a number of possible reasons why people were deciding against taking up the scheme.
“If house prices do drop, as is predicted this year now that interest rates are on the rise and the stamp duty holiday is gone, it doesn’t take much for new homeowners to find themselves in negative equity.
“This will mean borrowers will 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. This could leave them trapped in their home until the market bounces back,” she warned.
She also pointed out that until there was more clarity on working practices following the lifting of COVID restrictions, potential buyers could be holding back from making “a big decision like buying a house”.
She said: “Once people’s post-pandemic life is clearer there may be more people looking to buy and therefore use the scheme.”
However, she added that the data also showed that the number of people using the mortgage guarantee scheme picked up in September.
“Future releases may show more people taking advantage of 95% LTV mortgages. However, for the moment the scheme does not look to be the success the government might have hoped.”
The government-led initiative, which will operate until December 2022, came in for criticism when it was first introduced.
Read more: Budget 21: Will the Mortgage Guarantee Scheme work?
According to research by Twenty7Tec, the current scheme would only cover 35% of mortgages requested.
Phil Bailey, director at Twenty7Tec, warned that the scheme would not function as planned shortly before it was introduced, pointing out that the five-year term “might skew some of their (lenders’) models and make them think twice about the risk involved”.
He also noted that the problem would be magnified by interest rate rises over the five years due to existing inflationary pressures.
