So far the current Help to Buy Mortgage Guarantee scheme has played a relatively niche role in the market, so will its 18 month extension help first-time buyers?
Until October last year, the Mortgage Guarantee was underwriting around 2,000 loans per month, helping around half as many buyers as the Equity Loan scheme. Typically these guarantees have underwritten buyers in the North, with half the guarantees taken out in Scotland or Northern England, predominantly by higher-income first-time buyers who can afford to pay a mortgage with a small deposit. Further south, few buyers have incomes high enough to support repayments with a 5% deposit.
Like its sister Equity Loan scheme, the cost of the Mortgage Guarantee scheme will mostly be borne by users of the scheme, in this case the fees charged to lenders to underwrite 95% of the losses on the first 20% of the purchase price. The first iteration of the guarantee ran between 2013 and 2016 and saw 33 claims totalling £390k. The second iteration of the scheme started in 2021 and is yet to see a successful claim by a lender.
However the Mortgage Guarantee has not been tested in a falling market at a time when buyers have seen their repayments rise sharply. Since mortgage rates spiked, the number of new mortgages underwritten by the scheme has collapsed by two-thirds, reflecting the 75% increase in average mortgage repayments for a new buyer with a 5% deposit between late 2021 and today.
The extension of the Mortgage Guarantee scheme is unlikely to prove transformational. Higher mortgage rates have choked off many with smaller deposits, meaning relatively low, and increasingly northern potential take-up. That said lenders may be increasingly keen to hedge against what is likely to be a flat market next year when lending to purchasers buyers with little skin in the game and inflation-ravaged budgets.
