A government scheme to help people avoid losing their homes assisted fewer than half as many households as expected at nearly three times the cost.
The Mortgage Rescue Scheme, which was launched by the previous government in January 2009 following a steep spike in repossession numbers, helped only 2,600 people, compared with a target of 6,000, the National Audit Office (NAO) said.
The cost of helping each household was also nearly three times higher than had been anticipated at an average of £93,000, compared with a predicted £34,000, while the overall cost of the scheme rose to £240m from a planned £205m.
Under the scheme, people who were unable to keep up with their mortgage could apply for an equity loan to help reduce their monthly repayments, or they could sell all of their home to a housing association and rent it back again.
But the NAO said the last government “made the wrong call” on the number of people who would want to hand over complete ownership of their home and become a tenant, rather than enter into a shared ownership agreement.
The Department for Communities & Local Government (DCLG), which oversaw the scheme, originally estimated that 85% of households would opt for shared equity or shared ownership, with only 15% choosing to relinquish ownership of their home and rent it back.
But in reality, just 1.5% of people went down the shared equity route, with 98.5% choosing to sell their home to a housing association.
This meant the scheme was massively more expensive than had been anticipated, as the average cost of a shared equity rescue was estimated to be £12,000, compared with an estimated £78,000 for the full sale of a property.
Both types of rescue also proved to be more costly than planned at £57,000 for shared ownership and £93,000 for sale-and-rent-back.
Amyas Morse, head of the NAO, 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.”
The NAO said the DCLG did not adequately test the assumptions underpinning the scheme’s business model, while it should have acted earlier to improve its value for money.
But it added that the scheme was likely to have had some “wider preventive impacts”, as homeowners received advice and support, although it was not able to quantify this.
Margaret Hodge, chair of the Committee of Public Accounts, said: “The department was wrong about the help people really wanted, with most households choosing the more costly option of mortgage-to-rent rescue, which the department did not anticipate.”
Housing minister Grant Shapps said: “This official report represents one of the most damning indictments of Labour’s track record on tackling homelessness to date.
“Gordon Brown and Caroline Flint launched this scheme in a blaze of publicity, boasting that it would prevent 6,000 families from losing their homes. In fact, as with so much else during the Labour era, the programme ran over-budget and dramatically underperformed.
“One of my first decisions in government was to insist on better value for money from this £240m scheme.”
However, an official DCLG statement took a more positive stance.
“The Mortgage Rescue Scheme was introduced at a time of global financial turbulence and housing market uncertainty, and when forecasts indicated that the number of annual repossessions could reach 75,000,” a spokesman said.
“The NAO have 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.“