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Is the Government mortgage guarantee scheme working? Seeking views

Journalist: Helen Crane, This is Money/MailOnline

ended 26. October 2023

I'm interested in expert views on the Government mortgage guarantee scheme, which it is reportedly looking at extending in the Autumn Statement. 

https://www.gov.uk/government/publications/the-mortgage-guarantee-scheme

Looking at latest stats it's been used by c.1,330 people per month since launch in April 2021 (37k total up to July 23). About 1% of all purchases. That doesn't seem a lot to me - is that below expectations?

Mortgage payments on a 5% deposit loan are surely now much higher than in 2021. 

Will this mean even fewer people are now able to use it? I am interested in anecdotal evidence about the number of applications mortgage brokers are seeing - has this changed since mortgage rates began increasing? How does that compare to the numbers of people applying for 5% mortgages lenders are offering outside of the Government scheme? 

Do you think the mortgage guarantee scheme is helpful to the majority of first-time or lower-income buyers? 

Thanks in advance for any responses. 

 

8 responses from the Newspage community

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Stephen Perkins
Managing Director at Yellow Brick Mortgages
The Mortgage Guarantee Scheme was impactful when first released because at the time no lender was offering 95% LTV mortgages, so borrowers had to find a 10% deposit. After its launch, lenders felt confident lending to low-deposit borrowers again and launched products backed by the scheme. However, as lender confidence grew in this market, they saw the government scheme cost as unnecessary and most 5% deposit mortgages are now offered outside of the mortgage guarantee scheme. If the scheme disappeared tomorrow lenders would continue to offer 5% deposit mortgages so it now holds very little value as shown by it only being used on around 1% of purchases. Considering buyers with low deposits make up a much larger share of the purchase market, this scheme has outlived its original purpose and is now effectively redundant.
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Michelle Lawson
Director at Lawson Financial
As with most Government schemes, they are usually a token chest puffing gesture to show they are doing something. Very rarely do they really, honestly and truthfully benefit anyone like they should. This particular scheme is more backing the lenders to enable them to lend at higher loan to values with financial protection- some of which were doing this already. There is no real benefit to a customer in the Mortgage Guarantee scheme as such as mortgages are heavily regulated so will only follow the standard underwriting procedure. Personally, I think more should be done to ensure people are able to buy and rent without assistance and to also enforce builders/developers to buy more affordable homes rather than the lucrative executive homes.
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Justin Moy
Managing Director at EHF Mortgages
I don't see any huge issues with the Mortgage Guarantee scheme, it is another option for those with small deposits, and helps lenders offer products they may not be able to fund those products easily. Falling property prices are more of an issue than the physical mortgage, and as a result their popularity will be low in a tough market, but for some this opportunity may be cheaper than renting, and at least provides that initial step on the housing ladder. The scheme has its place definitely.
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Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
Upon launch the impact was noticeable, lenders at the time had only recently returned to lending 90% mortgages, therefore a 95% mortgage was fantastic news for first-time buyers with smaller deposits, and much needed, however shortly after the government announced the initiative, many lenders brought out their own 95% mortgages, thus making the scheme almost redundant.
As a mortgage broker dealing with a high percentage of First Time Buyer mortgages, I rarely need to use the scheme, as lenders offer 95% mortgages across the board.
After the initial launch, which was needed, I don't feel it has done anything to aid the housing market once we had several lenders introducing their own 95% deals.
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Gary Bush
Financial Adviser at MortgageShop.com
The Mortgage Guarantee scheme came at a time when the market needed it. However, it was closely followed by UK lenders offering these very much needed 95% mortgages without the guarantee and on often better terms. Sadly the government did nothing to revamp this offering and recharge it with some much-needed tweaks once lenders reacted and offered their own alternatives. In essence, it was a great scheme that had a limited shelf life. I do wonder if the UK government shouldn't have altered this to be an alternative of assisting applicants with an increase in lenders' standard income multiples with any extra borrowing being ringfenced guaranteed instead. Any government help is very much appreciated however they need to release and improve their offerings as market conditions change. A scheme should be organic, not set in stone.
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Jamie Thompson
Mortgage Broker at Jamie Thompson Mortgages
At the time of it's release it gave lenders confidence that they could lend to people with just a 5% deposit without the lender having to take the hit in the event of a negative equity repossession. The thing is, a lot of smaller lenders, especially building societies kept lending to people with just a 5% deposit even without using the scheme. This showed that lenders were a lot more confident with house prices than the Government.
Even today as house prices are falling many lenders still have 95% loan to value options. I doubt the lenders using the scheme would stop all 95% LTV lending if the scheme stopped. But it’s a nice easy vote winner that probably doesn’t cost the Government much at all and means they can sit back and say “Ohh look at us we’re on the side of first time buyers” when all they have really done is taken away risk from big banks and landed it on taxpayers.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
The Government Mortgage Guarantee Scheme is about as useful as an ashtray on a motorbike and whoever invented it is about as sharp as a bowling ball.

First-time buyers and buyers with the minimum cash deposit have been encouraged to mortgage themselves to the hilt and take all the risk of interest rates rising and house prices nose-diving, whilst the Government protects the lender against a portion of the loan if the property isn't worth enough in a fire sale after repossession.

If the Government wants to protect the bank and encourage lending they can do so, they can also protect the homeowner if the will is there. Sadly, it isnt.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
Whilst the government talked a good game their real issue was that by the time it was launched, most lenders had returned to offering 95% deal in their own right. The fact is that most 95% lending sits outside the scheme and happens regardless.