Deposit Unlock Scheme Explained

Saving for a deposit for a new home is perhaps one of the most challenging endeavours we face as an adult, especially as lenders clamp down on what are called high loan-to-value (LTV) mortgages. These mortgages are the ones where the lender will lend 95% of the property value and the buyer puts down only 5% of the value as a deposit. As the Help to Buy scheme comes to an end at the end of 2022, the new Deposit Unlock scheme is likely to become more interesting to buyers. Although the Help To Buy Scheme is no longer available it’s a good comparison to make to see the differences between the 2 schemes.

What is the Deposit Unlock Scheme?

This is a brand new scheme introduced by the Home Buyers Federation (HBF), certain home builders and certain lenders. The scheme is exclusively for new build properties and is open to first time buyers and home movers alike who are looking to buy a new build property worth £750,000 or less (not all lenders will lend up to the full £750,000). In essence the house builder pays to insure the mortgage, which gives the lenders more security when offering high LTV mortgages. This is very similar to the Government’s 95% mortgage scheme where the Government guaranteed the mortgage, but this scheme is not Government led and there are differences to consider.

Who has signed up?

Not all home builders have signed up to the scheme. The ones that have are:

  • Barratt Homes
  • Barratt London
  • Bellway
  • Bewley
  • Bloor Homes
  • City & Country
  • Countryside Properties
  • Crest Nicholson
  • Croudace
  • Davidson Group
  • David Wilson Homes
  • Devine Homes
  • Edenstone Holdings
  • Fairview
  • Hayfield Homes
  • Hill
  • Keepmoat Homes
  • Mandale Homes
  • Miller Homes
  • Morris Homes
  • Nicholas King Homes
  • Norfolk Homes
  • Pat Munro
  • Persimmon
  • Prospect
  • Redrow
  • St Modwen Homes
  • Taylor Wimpey
  • Thakeham
  • Vistry
  • Wheeldon

The lenders who have signed up are:

  • Accord Mortgages will, through brokers only, lend on properties valued up to £600,000
  • Nationwide Building Society will, through brokers only, lend on properties valued up to £750,000 over a period of up to 40 years. Nationwide will not lend to self-employed applicants
  • Newcastle Building Society will lend on properties up to £600,000 over a period of up to 40 years but there are restrictions on lending to self-employed people who received government funding during covid or employed people who received furlough payments.

It is important to note that none of these lenders can be approached directly for these mortgages and they can only be applied for through brokers. The home builder will be able to assist with this.

Difference between deposit unlock and help-to-buy

Both schemes allow a buyer access to a 95% deposit. The help-to-but scheme is Government led and the deposit unlock scheme is industry led, but what are the main differences?

  • Help-to-buy is open to first time buyers only but the deposit unlock scheme is open to everyone
  • Help-to-Buy has a larger pool of mortgages to choose from and the deposit unlock scheme has only 3 lenders currently
  • With help-to-buy the Government has a financial stake in the property and when the property is sold the Government will need paying back. The amount to be repaid, assuming the property is worth more when being sold, will be more than was borrowed
  • Help-to-buy has regional value caps which are significantly less than £750,000
  • Help-to-buy is no longer accepting new applications and will only run for existing applications until March 2023.

What other help is there?

There are several other schemes that can be used to help a buyer get onto the property ladder:

  • Shared ownership: this is where the buyer buys a portion of the property, typically between 10% and 75% and a 3rd party buys the remaining share. The owner then pays rent to the 3rd party on their share.
  • First Homes Scheme. This Government backed scheme give first time buyers the opportunity to buy a new build property for between 30% and 50% less than market value.
  • Rent to Buy Scheme is a scheme where tenants can rent a property at 20% below market rent to help them save for a deposit.

Getting on the property ladder is never an easy prospect and much of the Government backed help is aimed at first time buyers. This new deposit unlock scheme is industry backed and is aimed at supporting anyone wishing to buy a new build property.