By Vivienne Russell | 25 May 2011
The government scheme established to help homeowners avoid repossession has helped less than half the people it was expected to and has cost more, according to auditors.
The scheme, set up by the Department for Communities and Local Government in January 2009, was meant to help 6,000 households at a cost of £205m. However, in its first two years, it helped just 2,600 people at a cost of more than £240m, the National Audit Office found.
The scheme offered two types of help to people facing repossession. They could apply to a housing association for an equity loan to help them reduce their monthly mortgage repayments or the housing association could purchase the home outright, allowing the householder to remain as a tenant.
The DCLG assumed more people would apply for the equity loan, which would be a cheaper option for the taxpayer. In the event, hardly any did, with the vast majority selling their homes to housing associations and remaining as tenants. This was a much more expensive option, costing an average of £93,000 per rescue as opposed to the £34,000 cost of an equity loan.
The DCLG was unable to provide any information as to why so few households took the equity loan route.
The NAO concluded that the DCLG did not properly test the assumptions underpinning the scheme’s business case and could have acted earlier to improve value for money.
NAO head Amyas Morse 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 DCLG spokesman said that the scheme had been launched in the midst of the global financial crisis, a particularly ‘challenging and uncertain time’. But he added: ‘There are serious lessons to be learned from this programme and we are committed to addressing these in the future.’
The government scheme established to help homeowners avoid repossession has helped less than half the people it was expected to and has cost more, according to auditors.
The scheme, set up by the Department for Communities and Local Government in January 2009, was meant to help 6,000 households at a cost of £205m. However, in its first two years, it helped just 2,600 people at a cost of more than £240m, the National Audit Office found.
The scheme offered two types of help to people facing repossession. They could apply to a housing association for an equity loan to help them reduce their monthly mortgage repayments or the housing association could purchase the home outright, allowing the householder to remain as a tenant.
The DCLG assumed more people would apply for the equity loan, which would be a cheaper option for the taxpayer. In the event, hardly any did, with the vast majority selling their homes to housing associations and remaining as tenants. This was a much more expensive option, costing an average of £93,000 per rescue as opposed to the £34,000 cost of an equity loan.
The DCLG was unable to provide any information as to why so few households took the equity loan route.
The NAO concluded that the DCLG did not properly test the assumptions underpinning the scheme’s business case and could have acted earlier to improve value for money.
NAO head Amyas Morse 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 DCLG spokesman said that the scheme had been launched in the midst of the global financial crisis, a particularly ‘challenging and uncertain time’. But he added: ‘There are serious lessons to be learned from this programme and we are committed to addressing these in the future.’
