The deposit unlock scheme is a new initiative designed to make buying a home more accessible, by allowing buyers to purchase with a 5% deposit. Like every home buying plan, this initiative has both advantages and disadvantages. Read on to see if it’s the right choice for you.
What is Deposit Unlock?
The Deposit Unlock scheme is open to both first-time buyers and home movers, allowing them to buy a new build home with a 5% deposit.
The new build home must be bought from a participating housing development company (listed below). Currently, there are only two mortgage lenders who will provide a mortgage under the Deposit unlock scheme (detailed below).
The scheme was put together by lenders and the housebuilding industry, specifically the Home Builders Federation, which represents housing developers.
The Help to Buy loan scheme, which was set up in 2021, is due to finish in 2023 and will not accept new applications from 31st October 2022. It’s believed that the Deposit Unlock scheme will fill the gap that will be left when this initiative comes to an end.
How does Deposit Unlock work?
The Deposit Unlock scheme is able to offer 5% deposits because the house developers insure the mortgages. This gives mortgage lenders the security they need to be able to provide mortgages with a smaller deposit.
Often mortgage lenders will require a larger deposit for new build homes. This is because new builds tend to depreciate in value in the first few years. Usually, a minimum deposit required for new build home is 15%-25%. But, with the insurance paid for by the housing developers, the risk is removed for the mortgage providers, and the buyer gets to reap the benefit.
The scheme is only available for new build homes up to the value of £750,000. The total amount you can borrow will depend on your specific circumstances and the mortgage provider.
What are the pros and cons of the Deposit Unlock scheme?
The main advantage of the Deposit Unlock scheme is that house buyers will need a much smaller deposit than is usually required. Most mortgages require at least a 10% deposit to be paid on the property, and, as stated above, new build homes often require even more. Through the Deposit Unlick scheme, buyers may only need to save up for half or even a third of the usual amount to pay a deposit – although, depending on your specific circumstances, some mortgage lenders may require a deposit up to 9%.
The downside to the Deposit Unlock scheme is that only a limited number of properties are included. Whilst there are a number of housing developers who are included in the scheme, it’s not yet clear whether all the houses they build will qualify. Either way, you will have a limited choice on the property you buy if you go through the Deposit Unlock initiative.
Another downside is that only two mortgage lenders currently participate in the scheme. This means you might not get the best rates for your mortgage.
The final downside to the Deposit Unlock scheme is that it’s restricted to new build properties. New build homes usually depreciate in the first few years, so you could lose out if you’re only planning to live there short term.
Which home developers are signed up to the Deposit Unlock scheme?
The following housing developers are currently included in the Deposit Unlock scheme:
- Barratt
- Bellway
- Bewley
- Bloor Homes
- Countryside Properties
- Crest Nicholson
- Croudace
- Davidson Group
- Fairview
- Hill
- Persimmon
- Redrow
- Taylor Wimpey
- Vistry
Which mortgages are available for the Deposit Unlock scheme?
There are currently two mortgage providers taking part in the Deposit Unlock scheme.
Nationwide’s Deposit Unlock mortgage offers loans up to £750,000 and can be accessed through a mortgage broker. Nationwide offers a 2-year fix rate of 2.67% with a £999 fee to 95% mortgage or 2.79% with no fee. Or a 5-year fixed rate of 3.19% with a £999 fee to a 95% loan, or 3.24% with no fee. Nationwide will not loan to self-employed people under the scheme.
Newcastle Building Society’s Deposit Unlock mortgage offers loans up to £600,000 and can be accessed through a mortgage broker. Newcastle Building Society offers a 2-year fix rate of 2.79% or a 5-year fix rate of 3.19%, both to 95% loans. There is no fee required for mortgages through Newcastle Building Society and they will consider self-employed applicants.
What are the alternatives to the Deposit Unlock scheme?
95% mortgages are now becoming more prevalent and aren’t only available through the Deposit Unlock scheme. So, you should look at different options to ensure you can get the best rates. You can speak to a mortgage broker to help you find the best deal for your situation, or research various mortgage lenders to see what’s available. You may not be able to buy a new build with a 5% deposit without the scheme, but you will have the choice of older properties.
Whilst you may be keen to buy a house, sometimes it might be better to take some time to save up more money to make a larger deposit. This can help you to get better rates for a mortgage and pay back less over time.
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