What is Deposit Unlock?
The Deposit Unlock scheme, which launched in November 2021, is popular with buyers looking to buy a new build house with a low deposit, given lenders are generally hesitant to provide high loan-to-value (LTV) mortgages on new build homes. The scheme was initiated by Home Builders Federation (HBF).
Lenders are somewhat hesitant to offer high-LTV mortgages to borrowers because of the devaluation that occurs on new builds when they are no longer ‘new’ builds. Because of this, the deposits that are usually required on new builds tend to be higher. This is what the Deposit Unlock scheme aims to combat.
It is also expected to replace the void left behind by the Help to Buy scheme, which allowed first time buyers to purchase a new build property with a 5% deposit until October 2022.
How does the scheme work?
When you purchase a new build home, the building's developer contributes a portion of the price to an insurance plan for your mortgage company. This is because it will cover any possible losses for them should you fail on your mortgage repayments, that insurance coverage in turn lowers the risk of lending for your mortgage provider.
Additionally, the insurance entitles you to a cheaper interest rate than you would typically receive if you borrowed 95% of the value of your house.
Over 50 developers are involved in the scheme, building new homes valued up to £833,250. The Deposit Unlock scheme is a low-deposit mortgage solution created with the intention of giving you the option to own a new build home.
What makes Deposit Unlock different from Help to Buy?
The Help to Buy programme required a 5% deposit and you would have received a government equity loan of up to 20% of the purchase price (or up to 40% in London), and a mortgage for the remaining amount.
With a Deposit Unlock mortgage, you will take out a mortgage of at least 95% and pay interest on that figure from the beginning. Lenders typically insure mortgages that entail a higher risk, such as those taken out by first-time buyers with small deposits. The Deposit Unlock plan is supported by developer-funded mortgage insurance, which protects lenders from any possible loss if the home is sold for less than what the owner paid for it.
Participating builders and lenders
To view a list of the participating home builders in the Deposit Unlock scheme, please click here. The participating lenders* in the Deposit Unlock scheme are as follows:
-
Accord Mortgages
-
Nationwide Building Society
-
Newcastle Building Society
Benefits of Deposit Unlock
There are numerous benefits to the Deposit Unlock scheme, these are just a few:
-
Available to first time buyers AND existing homeowners looking to move into a new build
-
You own all of the property
-
Move into a new build with just a 5% deposit
-
Available now
An adviser can help you
The Deposit Unlock scheme offers an innovative solution to one of the main obstacles in purchasing new build properties - the deposit. By providing a low deposit option, it could help you to enter the property market and realise your homeownership dreams with a new build property.
Speak to one of our expert advisers today to determine whether the Deposit Unlock scheme is right for you. With access to a variety of lenders and developers, our advisers can find the right Deposit Unlock deal for your circumstances.
*Correct as of 8th November 2022.