Deposit Unlock scheme

The Deposit Unlock scheme aims to help people buy new-build homes with a 5% deposit.

Help to Buy is coming to an end in England and Wales in 2023, with the equivalent scheme in Scotland closing in March 2022.

Under the Help to Buy scheme, the government offers a loan to first-time buyers that is put towards the cost of buying a new-build property. It has helped buyers who are able to put down 5% of the property’s purchase price to become homeowners.

The good news is that if you’re looking to buy a new-build home, you could still get help in the form of the industry-led Deposit Unlock scheme.

The scheme has been introduced by the new homes developers who have built these types of properties, as choice can be limited for people looking to secure a 95% loan-to-value mortgage.

Deposit Unlock: how it works

Deposit Unlock is aimed at buyers – both first-timers and those already on the property ladder – who can raise a 5% deposit and want to buy a brand new home. The remaining 95% of the purchase price can then be borrowed from selected lenders participating in the scheme.

The first step is to find a new-build home included in the scheme at one of the participating developments. The housebuilder will confirm if the scheme is right for you.

When an Independent Financial Advisor has qualified you for the scheme, the housebuilder will provide you with written confirmation so you can apply to specified lenders for a Deposit Unlock mortgage. The lender will advise if you meet their criteria for a mortgage loan. If successful, you can then reserve your new-build home.

What’s the difference between Deposit Unlock and Help to Buy?

Under the Help to Buy scheme you put down a 5% deposit, take a government equity loan of up to 20% of the cost of the property (or up to 40% in London), and apply for a mortgage for the rest. The government’s loan is interest-free for the first five years.

With a Deposit Unlock mortgage, you’ll take out a mortgage of at least 95% and pay interest from the start.

Usually, lenders take out insurance on mortgages that carry a higher risk, including those taken out by first-time buyers with limited deposits. The Deposit Unlock scheme is backed by mortgage indemnity insurance funded by the developer, which shields lenders from any potential loss if the property is sold for less than the owner paid for it.

There will be no extra cost to buyers, however the buyer’s obligations to the lender remain unchanged.

What are some of the benefits of buying a new-build home?

New-build homes are popular with many buyers for many reasons. Location is key. When choosing a site, new homes developers carefully consider access points and the surrounding area. This means that most new homes are built in highly sought-after areas close to shops, public transport and other amenities.

They are also built with energy-efficiency in mind, and are well insulated, which means lower energy bills. These homes are move-in ready, and it’s often possible to design your home’s interiors before it’s even built.

Developers registered with the National House Building Council provide a 10-year structural warranty, which covers the cost of fixing any damage caused by faults or weatherproofing elements of the home. There are also similar guarantees available from other providers.

Who is eligible to use Deposit Unlock?

Deposit Unlock is open to buyers in England, Wales and Scotland.

Unlike the current Help to Buy Equity Loan scheme, Deposit Unlock isn’t just for first-time buyers, so you can use it to up or downsize, or to relocate. However, it’s not available to buy-to-let borrowers.

Eligibility criteria for the scheme will be the same as the criteria your chosen lender applies to all its mortgages. This includes looking at your income, how long you have been in your current job, your expenses, and your credit score.

If you’re self-employed, it’s worth checking with participating lenders if you’ll qualify to buy using the scheme. Nationwide caps its mortgage products at 85% loan-to-value for self-employed borrowers, which means Deposit Unlock isn’t available.

When can I start using the scheme?

Right now – the scheme was trialled and then launched in 2021.

Is there a good choice of property available?

Yes, most of the UK’s biggest house builders have signed up to the scheme, with more expected to join.

Which lenders are offering Deposit Unlock mortgages?

Nationwide and Newcastle Building Society have signed up to offer mortgage products through the scheme. More lenders are expected to join in the coming months, which will give buyers more choice.

Is there a price cap on how much I can spend on a home?

If you meet the eligibility criteria, you could spend more on a property using the Deposit Unlock scheme than you can using Help to Buy.

Newcastle Building Society will allow Deposit Unlock customers to spend up to £650,000 on a property. Nationwide will consider mortgages of up to £750,000, which means the sale price with a 95% loan-to-value mortgage extends the price cap to £833,250.

Which homes can’t you buy using Deposit Unlock?

The Deposit Unlock is available on new-build homes on selected plots from participating house builders.

You cannot purchase a shared-ownership home with a Deposit Unlock mortgage, as it’s a standalone scheme for new-build homes purchased with a 95% mortgage.

Some developers don’t include studio flats and one-bedroom apartments as part of the scheme, so it’s best to check the developer’s website.

How does a Deposit Unlock mortgage compare to a regular 95% mortgage?

Deposit Unlock isn’t much different from using a regular 95% mortgage. You’ll pay a 5% deposit and take out a mortgage for the remaining 95%.

However, the developer you’re buying from will fund mortgage indemnity insurance to reduce the risk to the lender.

Are there any additional costs associated with Deposit Unlock?

There are no additional costs to you as a buyer. The cost of the insurance behind the scheme is covered by the developer. You will still need to pay stamp duty, or the equivalent tax, if applicable, and the usual legal fees associated with buying a property.

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