What is the Deposit Unlock Scheme?
Launched in 2021, Deposit Unlock lets borrowers buy a new build home with just a 5% deposit from a participating home builder and using a mortgage from a participating lender. The scheme is currently available in England and Wales.
You can use the scheme on new build properties worth up to £833,250 and is designed to give more people the opportunity to buy their own home if they’re held back by the large deposit requirements.
The scheme grew in popularity following the end of the Help to Buy equity loan scheme, which let first time buyers purchase a new build home with a 5% deposit.
How does the Deposit Unlock scheme work?
The issue with new build homes is that mortgage lenders typically ask for higher deposits for them. This is because they’re protecting themselves from the inevitable devaluation of the property in its first few years, so they often ask for 15% or 25% at a minimum.
Deposit Unlock was created to get around these strict requirements and allow borrowers to buy a new build with just a 5% deposit. The house builders protect the mortgage lenders by paying to insure the mortgages themselves, often using some of the money they earned from selling the homes. The result is reduced risk for lenders who now feel more comfortable offering high LTV (loan-to-value) mortgages on new builds.
Pros and cons of Deposit Unlock
Being able to put down a 5% deposit on a new build isn’t the only advantage of the deposit unlock scheme, here are some benefits:
- It’s available to both first-time buyers and home movers.
- You can access competitive mortgage rates thanks to the insurance-backed guarantee.
- There are no regional price cap restrictions like with other schemes.
- Unlike other schemes, you own 100% of the property like you would with any other mortgage.
As you might expect, the way in which you commit to any big purchase comes with its own advantages and disadvantages. Here are a few things to consider before going ahead:
- There is a limited choice of properties because you can only buy a home from a participating home builder.
- Similarly, you are limited to participating mortgage lenders.
- New builds fall in value relatively quickly. Consider a new build for the long-term rather than the short-term.
Which mortgage lenders are offering deposit unlock mortgages?
There are currently only four mortgage providers offering mortgages through the Deposit Unlock scheme: Nationwide, Accord, Perenna and Bluestone. Don’t forget that these mortgages are only available via a mortgage broker. Speak to The Mortgage Hut today to get started.
How to buy with Deposit Unlock
The process is simple. The first step is to find a participating developer. Then through them, find a home you would like to buy. The developer will then confirm to you and your chosen mortgage broker whether or not the home you’ve chosen is available under the Deposit Unlock scheme.
Are there any alternatives to the Deposit Unlock scheme?
Not sure the Deposit Unlock scheme is for you? Whatever your reservations might be, there are a few alternatives you could consider.
Mortgage Guarantee Scheme
If the 5% deposit is the key factor for you, you could try the mortgage guarantee scheme which allows buyers to buy a home worth up to £600,000 with a 5% deposit. This scheme is government backed and due to end in June 2025.
Buy an older property
New builds carry more risk for mortgage lenders. You may have a better chance of securing a lower deposit if you consider buying an older home instead of a new build.
Own New Rate Reducer
If the new build home is what matters to you, you could consider the Own New Rate Reducer scheme which lets you buy a new build home with a lower mortgage rate. It works by the developer contributing 3-5% as an incentive for you to buy the home. This contribution is then offset against the mortgage interest by the lender and reduces your monthly payments for the first few years.
Eligibility for the Deposit Unlock Scheme
To be eligible for Deposit Unlock, you must meet the following criteria:
- You must be buying a new-build property.
- The loan you require must not exceed £750,000.
- The home you’re buying can only be from participating house builders and through participating lenders.
- You must not already own another home at the time of completion.
You may also find there are more hoops to jump through if you’re self-employed. A mortgage broker can help you navigate the complexities of a self-employed mortgage and put forward your best application. Speak to The Mortgage Hut to get started.
Buying a home through Deposit Unlock with The Mortgage Hut
This scheme is a great way for first-time buyers to get on the housing ladder and for home movers to find their next home with a small deposit. It’s only available through participating lenders, but The Mortgage Hut can help you find them.
We support you in every step of the application process and help find you the hunt down mortgage terms for you. Our specialist mortgage brokers are experienced with these schemes – your best shot for securing the new build you’re after!
FAQs
Is Deposit Unlock only for first time buyers?
No, although it is often seen as a replacement for the Help to Buy scheme which was for first-time buyers, Deposit Unlock is for both first-time buyers and home movers.
Can you use Deposit Unlock with a buy-to-let?
No, the deposit Unlock scheme is designed for first time buyers and home movers to help borrowers with small deposits buy a home, so it’s reserved for owner-occupied homes only.
What homes can you buy with Deposit Unlock?
The deposit unlock scheme is only available on new build houses and apartments from participating home builders.
How much does Deposit Unlock cost?
With the Deposit Unlock scheme, you can borrow up to 95% of the value of the home you’re buying. If you’re looking at a home worth £300,000, you’ll need to borrow £285,000 and put down a deposit of £15,000. The maximum you can borrow on deposit unlock is £750,000, but this will depend on your mortgage lender and financial situation.
