"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."
Amyas Morse, head of the National Audit Office, 25 May
2011
The Mortgage Rescue Scheme, launched in
January 2009 by the Department for Communities and Local
Government, in two years achieved fewer than half of the rescues
expected. The National Audit Office has reported that the
Department directly helped 2,600 households avoid repossession and
homelessness at a cost of in excess of £240 million - but it
originally expected to help 6,000 households for £205 million.
Today’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.
The Department believes that the Scheme is
likely to have some wider preventive impacts because homeowners
receive advice and support, but it cannot quantify this positive
impact.
Under the Scheme, vulnerable homeowners at
imminent risk of repossession who fulfil 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; or, alternatively, to 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
is a much more expensive option for the taxpayer. As a result, the
average cost of each completed rescue has been much higher than
expected - £93,000, compared with £34,000.
The Department does not have enough
information to say why so few households took the equity loan
route. Some households may have benefited from lenders’ forbearance
instead and not needed to access the Scheme. Others may not have
been able to fulfill all the criteria for participation in the
Scheme. In some cases householders may have chosen to relinquish
homeownership. The report also concludes that the Department could
have made a more accurate assessment at the outset had it made
better use of all the information available.
The Department now has actions in place to reduce the cost of
the Scheme to the taxpayer. It accepts the risk that these actions
may reduce the local availability of the Scheme if fewer
housing associations or lenders find offering it financially
viable.
Publication details:
HC: 1030, 2010-2012
ISBN: 9780102969702