The Bank of England has announced that the Help to Buy Mortgage Guarantee scheme is no longer needed, several months before it is due to come to an end, due to a strong recovery of the mortgage market.
The Help to Buy Mortgage Guarantee was created in 2013, to help encourage lenders to offer mortgages to people with deposits of 10 per cent or less. At the time, it was very rare to find a loan-to-value ratio of 90 per cent or more, making it hard for people to purchase their first home.
However, there is a much greater availability nowadays of such loans, which can be even cheaper than the loans offered through the scheme. This is because the banks have to pay a fee to the Treasury, so commercial competitors can offer cheaper alternatives.
The government scheme is due to finish at the end of this year, having helped around 80,000 first-time buyers get onto the property ladder.
At its most active period there were 4,000 people using the scheme each month to purchase their home, in mid-2014. The scheme accounted for 70 per cent of all loans borrowed by people with deposits of 10 per cent or less in 2014, but this has now dropped to just 25 per cent for the first quarter of 2016.
Mark Carney, the governor of the Bank of England, explained that lending would not suffer as a result of the scheme ending.
In his letter to Chancellor Philip Hammond, Mr Carney wrote: “Given the decreasing usage of the scheme over time, the Financial Policy Committee judges that the closure of the scheme would be unlikely, in current market conditions, to affect significantly the provision of finance to prospective mortgagors, including high loan-to-value borrowers.”