Article
What impact has the Mortgage Guarantee Scheme had, and how important is its extension?
December 15, 2023 4 Minute Read
The Mortgage Guarantee Scheme (MGS) was re-introduced in April 2021 to help boost activity in the housing market following the COVID related lull. The scheme, first introduced in 2013, allows lenders to offer a greater choice of low-deposit mortgages. This iteration of the scheme was due to end in December 2023, but has now been extended until the end of June 2025 as part of the recent Autumn budget.
However, take up of the MGS has been low in comparison to both its original iteration and the most recent low-deposit scheme, the Help to Buy (HtB) equity loan. Between its introduction in April 2021 and June 2023, the latest data available, only 39,253 homes were bought using the MGS. This is around 1.4% of total transactions. In contrast there were 56,700 HtB sales over its first 27 months on the market, which was equal to 2.0% of all transactions. The initial MGS scheme, which ran between October 2013 – June 2017, saw 104,763 completions, which equates to 2.3% of all transactions.
While the new MGS has seen relatively low take-up in its early years, it is worth noting that market conditions are different now compared to when the first MGS was available. In particular, the Bank of England base rate was only 0.5% for the majority of the first MGS’s time on the market, compared to the 5.25% it currently stands at. Higher interest rates affect higher loan-to-value (LTV) mortgages proportionally more than lower rates. The effect of higher rates on the attractiveness of MGS is reflected in the take-up of the MGS falling significantly in H1 2023 when interest rates were rising: there were just 3,814 MGS completions in H1 2023 compared with 11,752 in H1 2022.
Despite the low take-up of the new MGS, it has provided a viable option for buyers in more affordable parts of the UK. The ten most popular local authorities for the MGS (based on MGS sales as a proportion of total sales) have an average property value of under £157,000. In comparison, the ten local authorities with the lowest proportionate take up of the MGS see an average property value of £360,000.
In summary, whilst the new MGS overcomes the barrier of a large deposit, the affordability of high-LTV mortgages has been significantly impacted by rising interest rates. Still, the extension of the scheme is positive news for buyers in more affordable areas as it gives those with small deposits more options. However, the current high-interest rate environment will mean it is unlikely to see a significant increase in uptake in the remainder of its lifetime.
However, take up of the MGS has been low in comparison to both its original iteration and the most recent low-deposit scheme, the Help to Buy (HtB) equity loan. Between its introduction in April 2021 and June 2023, the latest data available, only 39,253 homes were bought using the MGS. This is around 1.4% of total transactions. In contrast there were 56,700 HtB sales over its first 27 months on the market, which was equal to 2.0% of all transactions. The initial MGS scheme, which ran between October 2013 – June 2017, saw 104,763 completions, which equates to 2.3% of all transactions.
While the new MGS has seen relatively low take-up in its early years, it is worth noting that market conditions are different now compared to when the first MGS was available. In particular, the Bank of England base rate was only 0.5% for the majority of the first MGS’s time on the market, compared to the 5.25% it currently stands at. Higher interest rates affect higher loan-to-value (LTV) mortgages proportionally more than lower rates. The effect of higher rates on the attractiveness of MGS is reflected in the take-up of the MGS falling significantly in H1 2023 when interest rates were rising: there were just 3,814 MGS completions in H1 2023 compared with 11,752 in H1 2022.
Despite the low take-up of the new MGS, it has provided a viable option for buyers in more affordable parts of the UK. The ten most popular local authorities for the MGS (based on MGS sales as a proportion of total sales) have an average property value of under £157,000. In comparison, the ten local authorities with the lowest proportionate take up of the MGS see an average property value of £360,000.
Figure 1: Highest and lowest proportionate use of the MGS by local authority
Source: DLUHC, HMRC
In summary, whilst the new MGS overcomes the barrier of a large deposit, the affordability of high-LTV mortgages has been significantly impacted by rising interest rates. Still, the extension of the scheme is positive news for buyers in more affordable areas as it gives those with small deposits more options. However, the current high-interest rate environment will mean it is unlikely to see a significant increase in uptake in the remainder of its lifetime.
