House prices are going up all over the UK. For those who have already invested, it’s a great thing.
But for first-time buyers, taking the first step can be a real challenge.
So, is there a way to make it easier to buy? The Deposit Unlock Scheme aims to do this.
What is the Deposit Unlock Scheme?
The Deposit Unlock Scheme is a mortgage scheme in the United Kingdom.
It allows people to buy a house with just a 5% deposit. This scheme focuses only on new-build properties in the UK.
Deposit Unlock is not a government initiative. Instead, it’s a scheme in the private sector in which specific lenders take part.
Not all lenders offer this initiative, so you must research.
Lenders and property developers
As part of the scheme, mortgage lenders partner with property development companies.
The developer pays into an insurance policy for the mortgage provider. This is known as ‘mortgage indemnity insurance’, and it protects the lender.
Why was the Deposit Unlock Scheme introduced?
The Deposit Unlock Scheme makes it easier for people to climb the housing ladder.
Secondly, new-build properties are considered riskier for banks to lend money on.
This is because they cannot be guaranteed to maintain their initial value over the first ten years.
Deposit Unlock thus gives protection to lenders for this type of house.
Finally, the scheme has replaced the Help to Buy initiative. This was once popular in the UK but isn’t active anymore.
Is the Deposit Unlock Scheme still active?
Yes, there are still lenders and building contractors that offer this scheme. It only applies to new build properties.
The main participants include:
- Accord
- Perenna
- Bluestone Mortgages.
Others offer this as well, so you should ask to be sure.
Who is eligible for the Deposit Unlock Scheme?
Anyone can take part in the Deposit Unlock Scheme. It isn’t only for first-time buyers. Existing homeowners can get involved, too.
But only if you leave your home to live in the new build. You can’t usually own more than one house at completion.
You need to ensure that the building company for the new build property participates in the scheme. You’ll then need to find a qualifying lender to partner with them.
You need to have a minimum deposit of 5%. For example, if the new build is valued at £300,000, you must make a £15,000 deposit.
The mortgage you take out must not be larger than £750,000. And you can’t get a Buy to Let mortgage through this scheme, either.
Do all mortgage providers offer Mortgage Unlock?
Not all lenders offer the Deposit Unlock Scheme. You should do some research to confirm which ones are applicable.
At the time of writing, some of the largest mortgage providers that offer the initiative are Accord, Perenna and Bluestone Mortgages.
Others offer this, too. You should ask each lender directly to get confirmation.
Smaller providers offering this initiative cannot provide competitive rates like major lenders. So, your options may be limited.
Advantages of the Deposit Unlock Scheme
The better interest rate for buyers
The Deposit Unlock Scheme gives a better interest rate than you’d otherwise get with a 5% deposit.
This means that the monthly payments will be lower than without the initiative.
Buyers retain initiative
Even though the building developer contributes towards an insurance policy, you still retain 100% ownership of the house once your mortgage is paid off.
This unlocks some other initiatives, such as Shared Ownership. Reducing your payments is balanced out by you owning less equity in the house.
High-quality housing
Deposit Unlock enables more people to buy a new-build home.
New builds are typically in better condition than older properties. And they meet more modern regulation standards.
Disadvantages of the Deposit Unlock Scheme
Not universally available
Not all lenders and new-build developers are involved with the scheme.
So, even if you have a specific new-build house in mind, you might not be able to capitalise on Deposit Unlock.
Higher provider rates
You’re limited to the mortgage offers you can consider, especially since only a few lenders participate in the initiative.
This may impact the interest rate you get. Smaller banks often cannot offer favourable rates.
Relatively expensive
Furthermore, even though you are getting a slightly better interest rate than a 5% deposit would typically get you, it is still not a large deposit.
This means that the mortgage will be far more expensive than it would be if you saved up for a larger deposit.
Should I use the Deposit Unlock Scheme?
If you find saving up a large deposit challenging but are determined to get onto the housing ladder, then Deposit Unlock could be worth considering.
On the other hand, if you can save up a larger deposit, it is recommended that you do so.
Even if it takes you a few more months or perhaps even years, the mortgage will be more affordable when you finally get one.
You should also research the other financial schemes that can assist buyers. Examples include:
- Shared ownership
- The First Homes initiative
- Right to buy.
