The Mortgage Rescue Scheme launched to much fanfare by the Department for Communities and Local Government two years ago achieved fewer than half of the rescues it set out to achieve, according to a report by the National Audit Office.
The scheme, which was launched in January 2009, aimed to help get 6,000 households out of debt at a cost of £205m. However, after more than two years, the scheme has only helped 2,600 households avoid repossession, and at a cost of £240m.
The NAO’s report concludes that the department did not adequately test the assumptions underpinning the scheme’s business case, and that it could have acted earlier to improve value for money.
Under the scheme, vulnerable homeowners at imminent risk of repossession who fulfill the eligibility criteria can apply to housing associations to provide them with an equity loan to help them reduce their monthly mortgage payments and retain ownership. Alternatively, the association can purchase the home outright, with the former owner remaining in the house as a tenant.
The department misjudged what the levels of demand would be for the respective types of rescue. It thought that most households would choose to take an equity loan through the scheme – the cheaper option for the taxpayer. In the event, hardly any did. Instead, nearly all households using the scheme have sold their house to a housing association and stayed on as tenants. This was a much more expensive option, with the average cost of each completed rescue reaching £93,000, compared with £34,000 budgeted.
Based on the statistics collected by the department from local authorities, between January 2009 and March 2011, nearly 39,000 households asked their local authority for information about the scheme. Of these, some 15,600 were assessed as being at risk of statutory homelessness, and 2,600 went on to complete the rescue process. In 2010, local authorities accepted 1,050 households as homeless following mortgage arrears compared with 2,340 such households in 2008.
According to the report, there is not enough information to say why so few households took the equity loan route. Some households may have benefited from lenders’ forbearance instead, and no longer needed to access the scheme. Others may not have been able to fulfill all the criteria for participation. In some cases, householders may have chosen to relinquish homeownership.
The report concludes that the department could have made a more accurate assessment at the outset had it made better use of all the information available.
Amyas Morse, head of the National Audit Office, said: “The department made assumptions about the level of demand for the Mortgage Rescue Scheme, and made the wrong call. There was more need than expected for more expensive support, and less for the relatively low-cost rescue option. Spending more than expected and delivering less means that the department has not provided value for money.”
james.a.kenny@estatesgazette.com
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