The Housing Minister, Grant Shapps, has announced that Government funding for a scheme aimed at helping those facing home repossessions in England is to be cut as part of the coalition’s austerity measures.

Mr Shapps said that the government grant for each home bought under the Mortgage Rescue Scheme would be reduced although the total kitty was unchanged. The scheme lets people sell their property to a council or housing association and stay in it as a tenant.

Housing is a devolved power so separate schemes are in operation in Scotland and Wales.

The Mortgage Rescue Scheme in England, which also allows people to sell part of the home in a shared equity deal to reduce mortgage payments, has helped 629 households since it was set up in early 2009. Another 1,849 applications were ongoing by the end of March, the latest figures show. In these cases, lenders would hold off any repossession action.

When it was launched under the previous Labour government in January 2009, ministers said that up to 6,000 households could be helped by the scheme.

Housing groups said government support for homeowners had helped keep a lid on repossessions, which are much lower than during the housing slump of the early 1990s. This prompted the Council of Mortgage Lenders (CML), charity Shelter and Citizens Advice to write to Chancellor George Osborne to urge him to keep support schemes going.

Mr Shapps said that the Mortgage Rescue Scheme needed to be “refocused” to offer better value for money, claiming that the funding of £180m this financial year could run out. Funding levels will be looked at again in the overall spending review in October.

The pot of government money in the scheme will remain the same. However, the proportion of government funding for each home bought by a housing association will fall from 65% to 55%. The government says this will allow more people to take part in the scheme.

Another scheme to help those struggling with mortgage arrears would be retained as a backstop if interest rates rose. The Homeowners Mortgage Support Scheme allows homeowners to defer up to 70% of their mortgage interest payments if they have a sudden, and temporary, loss of income. There are various other terms and conditions, and not all lenders allow it. The Government has pointed out that so far it has only helped 34 people.

“The most effective thing the government can do for homeowners is to tackle the record deficit and avoid the need for rapid increases in interest rates,” Mr Shapps said. “But there must still be effective help on hand for those struggling to pay their mortgages.”

The latest figures from lenders, published in May, showed that the number of homes repossessed in the UK fell by 7.5% in the first three months of 2010. CML figures showed that the number of homes repossessed dropped from 10,600 in the last three months of 2009 to 9,800 in the first quarter of 2010. This was also lower than the 13,200 of the same period a year ago.

The CML has described its original forecast of 53,000 repossessions in 2010 as “pessimistic”, and said that lenders had taken into account the courts protocol that meant repossession should only be a last resort.

The figures also revealed that the proportion of mortgage holders getting into payment difficulties also fell in the first three months of the year.

Mr Shapps said that the government was also publishing a report, commissioned by the previous administration, which says tolerant lenders and government schemes help homeowners. But it warned that there was a risk of high repossession levels in the years ahead.

UK homeowners increased the value of stakes in their properties by £3.2bn in the first three months of 2010, figures show. However, Bank of England figures show that the increase was slightly lower than the £3.4bn increase of the last quarter of 2009.

The rise was due to both homeowners paying off more of their mortgage and lenders’ demands for higher deposits. It is now two years since equity was last withdrawn from homes in the UK.

UK homeowners raised the equity levels in their homes by £38.3bn in the last two years. In the two years prior to that they borrowed £87bn against the inflated value of their homes, often to spend on big-ticket items or to consolidate debt.

The figures make clear the changing behaviour of homeowners over the last decade as well as the changing housing market. People were spending money released from the rising value of homes for a decade from the third quarter of 1998 - borrowing a total of £327bn.

At the height of equity withdrawal in 2003, the process of borrowing money against the rising value of homes was adding nearly 9% a year to the post-tax income of the entire UK population.

In the first three months of 2010, some 1.3% of the post-tax income of the population has been taken out of the economy because people decided to reduce their mortgage debt instead.

Low interest rates, as well as people’s fears of future debts or job losses, have led homeowners to pay off their mortgage faster than previously. As a result, these repayments have outstripped equity release.

With mortgage rates at low levels, people have decided to “overpay” while on standard variable rate home loans. With house prices dropping, the opportunity to borrow against housing equity also reduced.

However, in late 2009, the value of extra equity being added slowed down, as house prices started rising again gently.

Analysts believe that the extremely low savings interest rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages.

A recent survey by Age UK suggested that equity withdrawal was still being used by some sections of society as a last resort to pay off debts, or to find money when savings are being whittled away.  The charity said that during tough economic times, pensioners were finding it more difficult to live on a pension, and their savings were getting only small returns. Some were using equity release to pay for things such as home repairs.

On the whole this is good news, an aggregate increase in equity means people in the UK are taking mortgage debt much more seriously than in the past, when reducing equity to pay for expensive whims was commonplace and considered acceptable. As the recovery continues it will be important that this trend increases rather than reverses.