Deposit Unlock Scheme

Article first published and details correct as at August 2022. For up-to-date details, please get in touch.

What is the Deposit Unlock Scheme and how does it work?

The Deposit Unlock Scheme is a really new scheme in the industry. This scheme allows First Time Buyers and Home Movers to buy a new build property with just 5 % deposit.

This scheme is not supported by the government, it’s actually a scheme that was set up by the new build homebuyers association, a group of developers of new build developers properties set this scheme up themselves. Rather than having an Equity Loan, you put down a 5 % deposit with the developer, and they will then pay for an insurance policy to protect the mortgage lender against higher lending.

Generally speaking, lenders ask for a bigger deposit on a new build, so this scheme could work really well for a lot of people. It gives the lender a bit more assurance and protection to still lend you 95%, so everyone wins. 

What are the differences between Help to Buy and the Deposit Unlock Scheme?

The main thing to note is that Help to Buy how now ended. It’s been a great scheme where the government is providing applicants with an additional 20% deposit on top of their 5%, specifically on new build, and most recently only for First Time Buyers. After the first five years, the 20% that the government lent you is no longer interest free and you would need to start paying or start repaying it back in lump sums or in full.

The big positive with the Help to Buy Scheme was that you can obtain attractive mortgage rates and obviously that the loan is interest free for the first five years. However, interest would be based on 20% of the property value in five years time so you could end up owing more, which is one of the negatives.

One of the positives to the Deposit Unlock Scheme is it allows people to buy new builds with only a 5% deposit. What you generally find is that 5% deposit mortgages are one of the highest interest rates on the market, but with the Deposit Unlock Scheme they do offer some competitive rates as well. 

Who is eligible for the Deposit Unlock Scheme?

First Time Buyers and Home Movers, whether you’re upsizing, downsizing, as long as you’re moving home or buying your first home, which is pretty much everyone. It is only for new new build properties as well. As it stands, there are only two lenders that offer mortgages for this scheme at the moment, Nationwide Building Society and Newcastle Building Society, but I think there is a huge potential for other lenders to sign up to it.

Which home builders are signed up to the Deposit Unlock Scheme?

The builders are ahead of the lenders in terms of jumping onto the scheme, and as of 2022. A lot of the big ones are generally offering it, such as Barrett Holmes, Persimmon, Redrown, Taylor Wimpey and Bellway Homes. This will change and pretty much all builders, particularly the big ones, will offer the scheme, but there’s a list online.

What are the benefits of the Deposit Unlock Scheme?

You don’t need to borrow an equity loan, so you’re not giving up 20% of any future growth in the capital of your house. There are also lower interest rates than expected on a 95% mortgage because there’s an added insurance policy to protect the lender. aIt’s also available for First Time Buyers and Home Movers.

There will be a huge gap to fill to support First Time Buyers when the Help to Buy Equity Loan Scheme disappears, so the biggest advantage is the developers have worked together to come up with a solution that works for everyone. Limits through the Deposit Unlock Scheme also seem to be higher, the only limit I could see was a mortgage could be up to £750,000, whereas the Help to Buy Scheme is capped at the property value regionally, and it’s a lot lower than that. 

How do you go about applying for the scheme?

From my understanding you would need to make sure that the builder offers the scheme, and very few lenders offer the scheme right now, but I think it’s as straightforward as speaking to a mortgage advisor. There’s not a great deal you need to do in terms of applying, it’s just making sure that the builder and lender both offer the scheme. Speak with a qualified Mortgage Adviser and they will have a look into this for you.