The Deposit Unlock Scheme was initially launched in 2021 in the UK to try to fill the gap when the Government’s Help to Buy Equity Loan Scheme ended. Unlike most property buying schemes, this scheme was implemented by mortgage lenders and home builders rather than the Government. The Deposit Unlock Scheme helps First Time Buyers and Home Movers buy a new build property with a small deposit, often as low as 5%. Lenders have historically been reluctant to offer high loan-to-value (LTV) mortgages on new build homes, which is why this scheme is a welcome addition to the market. The Deposit Unlock Scheme should not be confused with the 95% Mortgage Guarantee Scheme – although both schemes encourage lenders to offer 95% LTV mortgages, the Deposit Unlock Scheme extends this offering to new build properties. In this guide, we’ll explain everything you need to know about the Deposit Unlock Scheme, including how it works, who’s eligible, the benefits and drawbacks, and whether it’s the right choice for you or not.
What is the Deposit Unlock Scheme?
The Deposit Unlock Scheme is a scheme that allows participating mortgage lenders in the UK to offer 95% mortgages on new build homes without bearing the full risk of these high loan-to-value products. The scheme is designed to give people who have a smaller deposit the chance to buy a new build home. Not all lenders and homebuilders in the UK take part in the scheme, but there are plenty of options, including from several of the UK’s biggest providers
How Does the Deposit Unlock Scheme Work?
Lenders typically see new build properties as being higher risk, which is why larger deposits of at least 15% to 25% are usually required. The Government’s 95% Mortgage Guarantee Scheme doesn’t include new build houses for the same reason. This is where the Deposit Unlock Scheme comes in. Participating lenders are able to offer 95% LTV mortgages for new builds because the house builders pay to insure a proportion of the loan to reduce the risk to the lender. Ultimately, this allows house builders to sell more homes and buyers to purchase new builds with a smaller deposit. It’s important to note that the insurance on the loan is only designed to protect the lender, not the borrower. You as the borrower will still have a regular 95% LTV mortgage, so it’s important to keep up with your repayments otherwise your home could be repossessed.
Who’s Eligible for the Deposit Unlock Scheme?
The Deposit Unlock Scheme is for any home buyer in the UK over the age of 18 who is buying their main residential home – this includes First Time Buyers and Home Movers. The property must be a new build from a participating home builder. You’ll need to save between a 5% and 9% deposit and then secure a repayment mortgage for the remaining 91% to 95% with a participating lender. You’ll need to pass the lender’s affordability and credit checks, and the maximum amount you can borrow will depend on your situation and the lender you choose.
To be eligible for the Deposit Unlock Scheme you must:
- be 18 or over
- be purchasing a property in the UK to live in as your primary residence
- be purchasing a new build property from a participating home builder
- have a deposit of between 5% and 9%
- pass the lender’s affordability and credit checks to secure a 91% to 95% repayment mortgage
What Are the Benefits and Drawbacks of the Deposit Unlock Scheme?
Benefits of the Deposit Unlock Scheme
- It gives buyers who can only afford to save a 5% to 9% deposit the possibility of buying a new build property.
Drawbacks of the Deposit Unlock Scheme
- Having a such high LTV could put you at risk of going into negative equity if the value of your home was to fall.
- Depending on the cost of your property, you may have to borrow a sizable sum, meaning your repayments could be high.
- These mortgages tend to come with relatively high interest rates compared to mortgages with lower LTVs.
- The choice of properties and mortgage lenders is limited compared to other schemes.
Is the Deposit Unlock Scheme Right For Me?
If you’d like to buy a new build property but you’re struggling to save a large enough deposit (usually at least 15%), then the Deposit Unlock Scheme could help you. Your choice of properties and lenders may be slightly limited, but the scheme could allow you to purchase a suitable home with just a 5% deposit.
If you have more than a 10% deposit and you’re in no rush to buy, you may want to consider saving a bit more and purchasing a new build property outside of the scheme, as you would likely pay less interest over the long term. If you only have a 5% to 9% deposit and you want to buy a property that is NOT a new build, then the 95% Mortgage Guarantee Scheme may be more suitable.
How Do I Apply for the Deposit Unlock Scheme?
The Deposit Unlock Scheme is only available via mortgage brokers like us – you cannot go directly to the participating lenders. This is good news for you though, because we make the process easy for you! We’ll explain how you can go about finding an eligible home, and then we’ll see what mortgage deals are available to you from participating lenders. Once you’re happy, we can apply for your mortgage on your behalf and liaise with your lender, home builder, estate agent and solicitor to ensure a smooth journey. We can also help you get a Mortgage in Principle so you can start putting strong offers down on properties you love whilst your main application is being processed. Simply book a chat with one of our friendly advisors to get going..
What Other Help to Buy Schemes Should I Consider?
There are other schemes available to help you get on the property ladder or purchase a new home that suits your needs. We’ll briefly look at these below, but please click the links to see the full guides for each one.
95% Mortgage Guarantee Scheme This scheme is similar to the Deposit Unlock Scheme in that it offers 95% LTV mortgages so you can purchase a home with only a 5% to 9% deposit. The main difference is that it is for properties that are NOT new builds. To learn more about this scheme, please read our guide, ‘95% Mortgage Guarantee Scheme Explained’.
Shared Ownership Scheme This scheme allows you to buy a share of a home and rent the remaining share. You can then work towards full ownership over time. For the share you do own, you’ll need to put down at least a 5% to 10% deposit and then qualify for a repayment mortgage for the remainder. To learn more about this scheme, please read our guide, ‘Shared Ownership Scheme Explained’.
The Bottom Line
The Deposit Unlock Scheme allows First Time Buyers, previous homeowners, and people moving house the opportunity to get a mortgage with just a 5% to 9% deposit. The property must be a new build from a participating home builder, and you’ll have to qualify for a repayment mortgage of 91% to 95% from a participating lender. Lenders are able to offer these high LTV mortgages because the home builders guarantee a part of the loan to reduce the risk. However, this protection doesn’t extend to you as the borrower, so you’ll need to keep up with repayments or your home may be repossessed. To see if you are eligible for a mortgage using this scheme and to find out what rates are available to you, please book a chat with one of our friendly advisors. We’ll only recommend for mortgages you’re likely to be accepted for to protect your credit score.
At Michael Usher Mortgage Services, we’ve been helping our local community for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
