Mortgage rescue scheme flops – and runs millions into the red

The mortgage rescue scheme launched in January 2009 to help households avoid repossession has been an expensive flop.

According to the National Audit Office, it supported less than half the people expected – and yet has gone £35m into the red after the government department responsible misjudged it.

The Labour government set up the scheme to help home owners struggling with their mortgage payments. It allowed owners to sell part or all of their property to a housing association and then rent it back, or to enter into a shared equity arrangement.

It was intended to help 6,000 households at a cost of £205m, but the National Audit Office says it helped only 2,600 at a cost of more than £240m.

The report said that Communities and Local Government did not adequately test the assumptions underpinning the business case for the scheme, and could have intervened earlier to prevent the scale of financial loss.

It says CLG misjudged the type of help householders would want. It expected most to take the cheaper equity loan, but in reality the vast majority sold their homes to associations and stayed on in their homes as tenants.

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.”

A spokesperson for CLG said: “The NAO has clearly identified shortcomings in the scheme that was launched at such a challenging and uncertain time. But the report also confirms our view that despite some failings overall, the scheme has made an impact helping prevent repossessions and homelessness – a view also shared by many advice agencies, lenders and local authorities across the country.

“But there are serious lessons to be learned from this programme and we are committed to addressing these in the future.”