Deposit Unlock Mortgages
Everything you need to know about the Deposit Unlock Scheme and how a broker can help you
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Deposit Unlock is a relatively new scheme designed to help first-time buyers and homemovers purchase a new build home with a 5% deposit. It offers some of the same benefits as Help to Buy, which is due to end on 31st March 2023, but is run in a very different way.
In this article we’ll explain how the scheme works, how to apply for a mortgage using it, and why using a broker is your best route to finding the right mortgage deal for your circumstances.
In this article:
- What is the Deposit Unlock scheme?
- How does it work?
- What are the eligibility criteria?
- Which lenders are participating?
- How to apply for a mortgage using the scheme
- Which housebuilders are involved?
- Deposit Unlock vs Help to Buy: What’s the difference?
- Get matched with your ideal mortgage broker
What is the Deposit Unlock scheme?
Deposit Unlock is a mortgage indemnity scheme introduced exclusively to help people buy a new build home with a deposit of between 5% and 10%. It is only available to buyers purchasing a home that will be their main residence.
It can be used to buy selected homes, built by a participating housebuilder and funded using a mortgage from a participating mortgage lender.
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How does it work?
Deposit Unlock was developed by the Home Builders Federation in collaboration with reinsurance firm Gallagher Re. Reinsurance is an insurance product that one insurance company buys from another to protect itself against major claims.
This is significant as, on the whole, UK lenders are reluctant to approve 90% or 95% mortgages on new builds because of what is known as ‘new build premium’. Essentially this describes the fact that many buyers will pay more for a brand new home than they would if they were the second owners.
Providers are always mindful that, in the event of repossession, they will need to sell the property, and they don’t want to be caught in a negative equity situation. To avoid this, they typically ask for a minimum deposit of between 15% and 25% the property’s value for a mortgage with a loan to value (LTV) of between 90% and 95%
With Deposit Unlock, housebuilders use part of the proceeds from the sale to pay to insure the mortgage and reduce the risk to the lender. It is hoped that this will encourage providers to be more accepting of 95% mortgages for new builds.
What is the eligibility criteria?
The scheme can be used to buy a house or flat on selected developments, but cannot be used to get a mortgage on a studio or one-bedroom flat.
You do not need to be a first-time buyer, so existing homeowners looking to move into a new build are eligible. However, you cannot own any other property (like a buy to let) upon completion of the sale.
While, technically, the scheme is open to anybody who meets its criteria, providers also have flexibility to include their own lending restrictions. For example, some will not lend to self-employed borrowers via Deposit Unlock.
Others will accept applications, but not if the business received government funding during the pandemic. If you’re self-employed and want to know what borrowing options are open to you, check out our guide to self-employed mortgages.
The maximum amount you can borrow using Deposit Unlock is £750,000, but you must meet the provider’s lending criteria, so that size mortgage is not typical. Most lenders will loan a maximum of 4.5 times your annual income provided you pass their affordability and eligibility checks.
As eligibility is assessed against the lender’s criteria, the governments ‘stress test’ that is used for Help to Buy is not applicable.
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Which lenders are participating?
So far, only a handful of lenders have agreed to participate in the scheme, but these include major names such as:
- Newcastle Building Society
- Accord Mortgages
Nationwide has announced that borrowers will have full access to its range of 5% deposit mortgages through the scheme, and that loans can be taken over up to 40 years (information correct at time of writing, August 2022).
Others are expected to follow in the coming months.
How to apply for a mortgage using the scheme
95% mortgages are seen as high risk by lenders as they are lending a huge chunk of the property’s value. For this reason, it pays to prepare properly before rushing into an application – particularly as multiple rejections on your credit file is a red flag to a mortgage provider.
Follow these steps to give your application the best chance of success:
Get your documents together and your finances in order
Mortgage providers will need to confirm your ID, check the loan is affordable and assess the risk level of lending to you. The exact documents required vary according to several factors, but you can get a good idea of which ones you will need with our guide to mortgage applications.
It’s worth checking through your bank statements for any unnecessary subscriptions or regular gambling payments that might affect affordability. And you should make sure you don’t go into an unauthorised overdraft in the three months leading up to your application.
It also pays to get a copy of your credit files and check there are no discrepancies. And, of course, it will be important to keep up to date with all financial commitments.
You can now work out how much you can afford to pay each month.
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Which housebuilders are involved?
More than twenty housebuilders are signed up to the scheme, including the biggest companies that together account for over 60% of new homes built in the UK.
- Barratt Homes
- Crest Nicholson
- Taylor Wimpey
Deposit Unlock vs Help to Buy: What’s the difference?
The biggest difference between the two is that with Help to Buy, the government lends buyers 20% of the value of the property (40% for properties in London), which is interest free for the first five years. So, buyers put down a 5% deposit but only borrow 75% of the value from the mortgage lender.
With Deposit Unlock, you will borrow 95% of the property’s value from your mortgage provider and start paying interest straight away. Because, from a lender’s perspective, the LTV is so much lower with Help to Buy, you have more products available to you and may subsequently be able to secure a lower interest rate.
But remember, Help to Buy is now only available to first-time buyers.
Unlike Help to Buy, Deposit Unlock does not include regional price caps.
Get matched with a broker experienced in the scheme
Before applying for a mortgage via the Deposit Unlock scheme, it makes sense to explore all options. Buying on the open market is often preferable as you have more choice of properties and mortgages but, for some, Deposit Unlock will be the most affordable way to get on the housing ladder.
Our broker-matching service will assess your situation and allocate you a whole of market broker who is experienced in helping people in your position get the best deal on the market. If Deposit Unlock (or another buying scheme) is right for you, they will guide you through the process and check deals with every participating lender to ensure you are not overpaying for your new home.
Call today on 0808 189 2301 or enquire online to get matched with your ideal broker.
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Yes. Deposit Unlock is available on selected new build developments in England, Scotland and Wales.
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