Help-to-Buy 2, the Government initiative designed to help borrowers with a small deposit to get on the ladder, has led to a doubling of low deposit mortgages, according to Genworth, the private mortgage insurer.

It says that 95% loan-to-value mortgages, for those with just 5% upfront, have doubled since the scheme launched, accounting for £3.43 of every £100 of mortgage lending, up from £1.77 in the previous 18 months.

However this is still a long way short of the £7.47 per £100 of mortgage lending that 95% deals accounted for in 2007/8.

Total first-time buyer lending grew by £14.4bn (29%) during the first 18 months of the Government initiative and a significant proportion of the extra lending has been made via 95% LTV loans. This is an encouraging sign for a group that was hit hard by tightening credit conditions during the recession.

On the wane

However, Genworth pointed out that there are concerning signs that 95% LTV lending stimulated by the Help to Buy 2 scheme may already be on the wane; both 95% LTV lending and first-time buyer lending declined by value year-on-year during the first and second quarters of this year.

This raises doubts about how well low deposit mortgage activity will fare when the scheme is withdrawn at the end of 2016, particularly with expectations that interest rates will finally start to rise next year, raising costs for borrowers.

Simon Crone, vice president for mortgage insurance – Europe at Genworth, commented: “We are potentially facing a situation where the high LTV market could easily fall back into decline with the end of Help to Buy 2 now just over a year away. Even if the market remains at its present level or grows without government backing, it stands to do so without the added protection of the mortgage guarantee, which the regulator has judged as being effective in upholding underwriting standards.

“Neither a drop in lending nor an increase in risk looks like an attractive option once the scheme ends.”