Why the Government Guarantee Scheme has more than justified itself

Hence, why you will have recently seen some headlines generated by the figures to come out of the Treasury which has focused on the Government Guarantee Scheme - announced back in March’s Budget – and what appears to be a relatively small number of home buyers directly supported by it.

However, the criticism that might be generated here – along the lines that it’s a waste of taxpayers’ money, or that it is simply ramping up prices further, or that the individuals utilising it are now much more likely to end up in negative equity, to my mind are wide of the mark.

What could be seen as a relatively low number of mortgage completions within the scheme between April and June this year, should actually be seen in a much wider context than just the 812 home buyers it directly supported over that three-month period.

For a start, the scheme was only announced in March. Most of the lenders active within it didn’t actually launch any products until May at the earliest, so it had hardly got going throughout these three months anyway.

Secondly, is not so much the direct impact of the scheme but what it provided in terms of a significant catalyst in the provision of high LTV mortgages, particularly at 95% LTV levels.

Those who might wish to throw some brickbats at the Government and the scheme should be aware of the pre-March situation we were all faced with. You could effectively count the number of 95% LTV products available on one, perhaps two, hands. And those that were available were almost all requiring parental or family support/guarantees to actually get the loan.

Consider the situation now. A quick scan of product availability for a borrower with a 5% deposit wanting to purchase a £250k property, shows they now have access to over 220 95% LTV products, with rates as keen as 2.34%.

Back when the scheme was launched, we barely had double figures to choose from, and the rates were around the 5% mark. Even the first products to be launched as a result of the scheme were at 4%, so you should be able to see how greater competition has impacted on the pricing.

There is absolutely no doubt in my mind that the situation where lenders were unwilling to lend in the high LTV space would have continued were it not for the Government’s intervention. It’s not even so much that lenders joined the scheme – it’s that it gave confidence to the lending community to be active in this space, and you’ll now find that a lot of lenders leading the way are not using the Government guarantee anyway.

That doesn’t really matter. It’s what it did. It kick-started the whole high LTV market, which had been heavily in demand, but was definitely on its uppers in terms of product availability.

The more important figures are actually going to be from post-June this year, and they will need to take into account the number of lenders offering 95% LTV loans outside the scheme because there are many who are utilising private mortgage insurance arrangements through the likes of AmTrust, or who are taking the risk on their balance sheet.

Whatever the Guarantee eventually accounts for over the next year or so – it is due to finish at the end of 2022 – it has more than justified itself. Without it, we would not have other schemes like Deposit Unlock, which we at Qualis Credit Risk and our partners Gallagher Re have also been heavily involved in, for new build allowing borrowers to buy with a 5% deposit, and we certainly wouldn’t have anywhere near the functioning 95% LTV market we have now.

So, when it comes to the scheme, the brickbats don’t hit the mark at all. I’m not saying that everything the Government does in this space justifies a bouquet but, on this occasion, the ‘performance’ and impact is far better than these initial numbers suggest.