First reported in The Sunday Times, the extension, which has not yet been fully outlined, is due to concerns that higher loan to value (LTV) mortgages could be pulled from the market due to the recession and expected house price falls.
It was reported at the end of October that the Treasury and former Chancellor Kwasi Kwarteng had been considering extending the mortgage guarantee scheme due to turbulence in the mortgage market following the mini Budget.
The scheme was launched in April last year as higher LTV mortgages practically disappeared from the market as lenders tried to mitigate their risk.
It offers lenders the option to purchase a guarantee on mortgages where a borrower only has five per cent deposit. It compensates lenders for a portion of net losses if the property has to be repossessed.
The guarantee applies down to 90 per cent of the purchase value to the property covering 95 per cent the net losses. The lender retains five per cent risk in the portion of losses covered by the guarantee.
The latest figures from the scheme show that it has supported 24,153 completions between April 2021 and June 2022 and the value of mortgage completions came to £4.4bn.
According to the latest figures from Moneyfacts, residential products at 90 per cent LTV currently stand at 467 and residential products at 95 per cent LTV number 130.
This is compared to 706 deals at 90 per cent LTV and 353 deals at 95 per cent LTV products in December last year.
The number of deals did fall significantly in October, which can be attributed to the mini Budget, down from 513 products at 90 per cent LTV and 274 products at 95 per cent LTV deals in September to 295 and 132 respectively. It has been slowly recovering since then.
Brokers call for more FTB support
Brokers were mixed on the success of the mortgage guarantee scheme or if an extension would be the best move by the government.
Gary Boakes, director at Verve Financial, said that for most lenders previously offering high LTV products, the scheme “ended up blending into all the other products and, truth be known, you probably didn’t even realise the difference when submitting”.
He continued: “Its main goal was always to get other lenders to offer 95 per cent LTV mortgages and with lenders starting to pull two-year fixed rates at 95 per cent, it probably feels like the wrong time to end the scheme and would be worth extending to drive purchase activity among first-time buyers.”
Matthew Jackson, director at Mint FS, said that the scheme “served its purpose” as it gave confidence to lenders to return to higher LTV tiers.
However, he said that once they returned only a small number of lenders used the scheme and it was ones outside the scheme who offered the “most competitive rates”
Jackson continued: “Instead of extending it, I would prefer the government look to spend the money this scheme costs on something more relevant to the current market such as a similar scheme to reduce the stress test rates used for landlords’ buy-to-let remortgages.
“This would ensure that rental properties are not disposed of at a time when the demand for rental homes is increasing.”
Lewis Shaw, owner and mortgage broker at Riverside Mortgages, added that the mortgage guarantee scheme was “nothing special” and “had very little impact”.
He continued: “For that reason I don’t think the government should extend it. If anything, politicians should stay out of the mortgage market and let it do its thing.”
Mike Staton, director at Staton Mortgages, disagreed and said that mortgage guarantee scheme was a “great scheme” as it gave lenders assurances to lend to borrowers with five per cent deposits.
“Having submitted many of these myself, I think they are becoming more relevant now as uncertainty surrounds house prices. When this ends, we will have seen two major schemes go for first-time buyers this year.
“At a time when first-time buyers are being made to jump through more hoops than a dolphin at Sea World, we need to see schemes introduced and not revoked,” he noted.
The Treasury was contacted for comment and said that an update would be provided in due course.
