The Mortgage Guarantee Scheme, introduced during the Chancellor’s Budget speech, has proven to be “underwhelming”, according to Kate Davies (pictured), executive director at the Intermediary Mortgage Lenders Association (IMLA).

Davis said that while the scheme sounded good initially, it has not turned out to be as simple as first suggested.

The Mortgage Guarantee Scheme aims to help those with lower deposits onto the housing ladder; the government will offer incentives to lenders in order to provide 95% LTV mortgages, many of which were removed from the market as a result of the pandemic.

Davies said: “From the lender’s perspective, the scheme costs money, and in order for the lenders to make money they would need to complete a high number of cases.

“While the big six lenders have confirmed participation in the scheme, it is unlikely many smaller lenders and building societies will follow suite due to the unsustainability of the scheme financially.”

She also noted that if the products are not priced competitively, then borrowers would likely wait until they can afford a lower LTV and therefore a better rate.

Davies said: “Affordability is an issue for many, borrowers are now being stress-tested at 6% to 7% in order to qualify for this type of mortgage product.

“Lenders are being extremely cautious when accessing potential borrowers for this type of offering.”

Additionally, Davies believes that the scheme is too short in length, as it becomes available in April 2021 and runs until the end of 2022, which will mean that few people will be in the position to utilise the scheme during its availability.