ii comments on the Mortgage Guarantee Scheme and Help to Buy ISA stats

Home ownership dream still out of reach for many despite well-intentioned schemes.

• The Mortgage Guarantee Scheme was launched on 19 April 2021 to help increase the supply of 5% mortgages as a result of the pandemic
• From the scheme launch to the end of December 2021, 12,388 mortgages have been completed
• Since the launch of the Help to Buy ISA, 480,494 property completions have been supported by the scheme
• 630,264 bonuses have been paid through the scheme (totalling £714 million) with an average bonus value of £1,132.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The Mortgage Guarantee Scheme was launched primarily to help a new generation in realising their dream of home ownership in response to a shortage in the availability of high loan-to-value mortgages as a result of the Covid-19 pandemic.

“The scheme is very much a spiritual successor to the 2013 Help to Buy: Mortgage Guarantee Scheme, which helped to restore the low-deposit mortgage market following the 2008 financial crisis. The scheme, which closed in 2016, worked well, helping over 100,000 households to buy their own home.

“The new Mortgage Guarantee scheme is off to a decent start, with 12,388 mortgages completed within the first eight months of its inception – of these 86% were purchase by first-time buyers.

“The scheme does not protect against negative equity, which might a concern for those who paid over the odds on their first home. With a 95% mortgage, only a small fall in property prices could plunge owners into negative equity, which could be an issue for those who plan to move in the not-too-distant future with house prices expected to dip. Negative equity is only an issue if you need to sell or remortgage

“For all the schemes and initiatives at wannabe homeowners’ disposal, for many, their dream of buying a property remains desperately out of reach because of a triple whammy of surging house prices and rising mortgage rates and the cost-of-living squeeze.

“The likelihood of higher interest rates to combat soaring inflation means that things are set to get tougher from an affordability perspective – with fast-rising rents offering no respite. However, rapidly climbing mortgage rates forcing home shoppers to back off a bit could be the undoing of the surge in property values. It could allow inventory levels to rise and, in turn, result in a transition to a market with lower levels of home price growth.”

Help to Buy ISA

“It is clear that the Help to Buy ISA is becoming a forgotten-about initiative to help aspiring homeowners to get on the property ladder – even among those who were able to open one before the ISA was closed to new accounts. The average bonus of £1,132 barely covers home survey and legal fees as well as other costs associated with buying a property.

“Help to Buy ISAs have been usurped by the more generous Lifetime Isa. However, While the account was designed to help those saving up to buy their first home, the fact that you can withdraw money from the account at any time for any reason and still get to keep the interest earned on your savings, makes it a decent alternative savings account.

“Interest rates offered on Help to Buy ISAs outstrip those offered on mainstream cash ISA accounts – although contributions are restricted to £200 a month.”