Mortgage guarantee extension ‘wouldn’t make much difference’, says market expert

A housing and construction market expert has warned that the rumoured extension of the mortgage guarantees scheme would not make much impact given the rapid increase in mortgage rates in recent months.

Simon Rawlinson, head of strategic research and insight at Arcadis, said because mortgage rates themselves have increased, it is no longer merely the deposit that is a barrier to affordability, but the rate on the mortgage itself.

Speaking at the Housing Forum national conference in London this week, he said: “This [a guarantees scheme] is an old solution to an old problem,” and added “It probably wouldn’t make much difference’.

Under the mortgage guarantee scheme, the government offers lenders financial guarantees to enable them to offer mortgages with a 5% deposit on homes worth up to £600,000.

The government is reportedly planning to announce an extension of the scheme, which is due to end next month.

However, mortgage rates hit their highest levels seen in years over the summer, following hikes in the Bank of England base rate. The average rate on a two-year fixed deal hit 6.66% in July, the highest seen in 15 years.

Rawlinson also said the housebuilding industry needs to “start shouting very loudly “that it “isn’t infinitely elastic” and there are fundamental structural things that it needs help with.

He said: “I would like a more expansive debate on the levers that we need to pulling a very systematic way to enable us to diversify and increase our sustainability and resilience , that is going to be in areas like planning reform, land reform and funding.”

Later at the conference, Paul Quinn, director of regeneration at £1bn-turnover Clarion Group, said the current development funding model for housing associations - under which they have subsidised more of the build finance by leveraging their own balance sheets- doesn’t work.

“The last few years have been really very challenging and the cross-subsidisation model really doesn’t work outside of central London, even for an organisation of our scale if it ever worked at all”, said Quinn.

“If you are genuinely going to deliver affordable homes ,including social rented homes, it’s very difficult to do on this model, wherever you are in the UK.”