You are here: Home - News -

Mortgage guarantee scheme take-up limited but acted as market catalyst

by:
  • 17/02/2022
  • 0
Mortgage guarantee scheme take-up limited but acted as market catalyst
The mortgage guarantee scheme might have had limited take-up and may not address problems around affordability for first-time buyers, but it has acted as a catalyst for lenders to return to higher loan to value (LTV) lending.

The latest figures from HM Treasury said that between April and September the mortgage guarantee scheme had supported around 6,535 mortgages, with the total value of loans coming to £1.2bn.

This accounted for three per cent of all residential mortgage completions in the UK during the six-month period, and the majority of borrowers were first-time buyers and those on lower incomes.

The scheme aimed to encourage lenders back into high LTV brackets as product numbers had fallen during the pandemic.

The government offered lenders the choice to purchase a guarantee on mortgage loans where borrowers have a deposit of five per cent. It can be used for new build, existing homes, first-time buyers, home movers and remortgagors.

When the scheme was introduced last year brokers said that borrowers were not willing to wait for details of the scheme and opted for other 95 per cent LTV deals or increased their deposit.

Following the recent figures today, some said the take-up of the deal had been disappointing, especially considering how many first-time buyers were keen to get on the property ladder.

Proportunity’s chief executive and co-founder Vadim Toader said: “Einstein said that doing the same thing and expecting different results is the definition of insanity. So, it is worth asking why the government launched the mortgage guarantee scheme as a new insurance product when it is identical to the 2013 Help to Buy mortgage guarantee.”

He said that the 2013 scheme was axed by the government in 2016 due to “low demand” and added that history was repeating itself with “limited take-up” of the mortgage guarantee scheme.

Toader explained: “The underlying problem with both schemes is that they fail to address the problem of affordability. This issue is more pressing than ever before in the post-pandemic world with hybrid working and working from home, in which people are seeking a second bedroom and ideally a garden.”

He noted that the mortgage guarantee scheme had a borrowing cap at 4.5 times income, which he said was £100,000 short of what borrowers needed according to census data.

He said this meant the scheme could only help one out of 10 people that could use Help to Buy or Proportunity’s equity loan.

Toader outlined an example of a first-time buyer with a £60,000 salary who would be limited to £270,000 under the scheme, so would be £100,00 short of a £400,000 two-bed flat.

Another example he cited as if someone wanted to buy a £600,000 home with a five per cent deposit, they would need to get a £570,000 mortgage at 95 per cent LTV, and to get this through the scheme they would need a minimum income of £140,000 per year.

Toader said: “A cynic might observe that the government never really intended the scheme to have much uptake. Research by the Financial Times has shown that the government is only budgeting 3,000 loans per month for this scheme, so it can only help around 60,000 people, which amounts to less than 10 per cent of potential first-time buyers per year.”

 

Mortgage guarantee scheme catalyst for high LTV lending

David Hollingworth, L&C Mortgages’ associate director for communications, said: “I think that we have to be careful not to be damning about the take-up numbers of the scheme, as this risks undermining the very positive impact that the launch of the guarantee scheme had on the 95 per cent LTV market.”

He said that high LTV deals had been “extremely slow” to relaunch as lenders got to grips with the ramifications from the pandemic, and so there had been “limited availability” of 95 per cent LTV deals early last year.

Moneyfacts data shows that 90 and 95 per cent LTV products have rebounded to near pre-pandemic levels, with 90 per cent LTV product count now at 735 products and 95 per cent LTV products at 335 products.

Date  All 90 per cent LTV products  All 95 per cent LTV deals 
01/02/2020 776 405
01/02/2021 248 5
01/2/2022 735 335

Source: Moneyfacts

The average rates at this higher LTV bands has also fallen, with average rates bar five-year fixed rate at 90 per cent LTV all lower than they were in 2020.

Date Two-year fixed rate, max 95 per cent LTV Two-year fixed rate, max 90 per cent LTV Five-year fixed rate, max 95 per cent LTV  Five-year fixed rate, max 90 per cent LTV 
01/02/2020 3.22 2.58 3.52 2.91
01/02/2021 3.99 3.56 3.69 3.72
01/02/2022 3.05 2.61 3.35 2.96

Source: Moneyfacts

Hollingworth said: “The announcement of the guarantee scheme not only meant that major lenders committed to launching back into 95 per cent LTV but also gave increased confidence to others that were concerned that they could be inundated if they were to go back to 95 per cent LTV.

“Some lenders have elected not to rely on the guarantee scheme at all in developing their deals for those with a small deposit but the level and range of choice that we have now was certainly given a kickstart by the guarantee scheme. That has over time also helped improve the rates on offer to those with a small deposit.”

He said that many first-time buyers would try and build a bigger deposit to access lower rates that have become available and in many cases had been “forced to do so” to bridge the affordability gap.

Chris Sykes, associate director and mortgage consultant at Private Finance, agreed that the scheme had been a catalyst for lenders to return to higher LTV lending.

He said: “I’d say they are likely growing in take-up as the rates at 90 per cent LTV or more have come down significantly now since the scheme was released. When it was released, there were very few lenders at these higher LTVs and the introduction of this scheme gave many the safety net to offer these high LTV loans again but often they were at extremely high rates.

“Over time these rates have come down as there is more competition and the risks involved reduce, so more people will now be interested. With this scheme it isn’t broker knowledge or lenders offering one rate for on the scheme and one rate for not on it, lenders either use the scheme at the 95 per cent LTV banding or they don’t.”

There are 0 Comment(s)

You may also be interested in

Privacy Preference Center