Nearly nine in 10 (86%) of mortgages purchased under the mortgage guarantee scheme have been bought by first-time buyers, the latest research by the Treasury has shown.

Since the launch of the scheme in April 2021, 37,376 mortgages have been completed up until the end of March 2023, valuing £7bn.

The mortgage guarantee scheme offers lenders the option to purchase a guarantee on mortgage loans where the borrower has a deposit of less than 10%. The scheme can be used for mortgages on new build and existing homes by first-time buyers, home movers and those remortgaging.

In order to qualify for the loan, which is supported by the scheme, the applicant must follow the eligibility criteria, which includes rules such as funds must not be used to purchase buy-to-let mortgages or second homes, and the property value must be £600,000 or less.

The guarantee also compensates participating mortgage lenders for a portion of net losses suffered in the event of repossession.

The data from the Treasury also found that there were higher proportions of completions of mortgages under the scheme in the South East of England (10%), North West of England (12%) and Scotland (23%), with a lower proportion in London (4%) and Northern Ireland (3%).

Furthermore, the mean value of a property purchased or remortgaged through the scheme was £197,472, compared to the national average house price of £285,009.

Over a third (35%) of the properties purchased since the introduction of the scheme are terraced houses, with 29% being semi-detached and 24% are flats or maisonettes.

The next data analysis of the mortgage guarantee scheme will be released by the Treasury in November 2023.

Mortgage expert at Quilter, Karen Noye, commented: “With the housing market showing signs of an impending slowdown, with some predictions showing a potential 10% drop is on the cards, there could be severe repercussions for those who have utilised the scheme.

“Negative equity in simple terms is when the outstanding balance of a mortgage is higher than the current market value of the property. In this scenario, if the householder decided to sell their property, the proceeds would not be sufficient to repay the outstanding mortgage. This is a real possibility for those who have taken high LTV mortgages such as 95% mortgages especially if house prices drop as predicted.”

Noyed added: “While the scheme has undoubtedly provided a lifeline to many buyers, it is important for potential new applicants to consider the risks as well as the benefits at this moment in time. As the winds of the housing market change, its essential to make informed decisions to weather any potential storm.”

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