What is Deposit Unlock?

Last updated: May 2024 | 3 min read

Deposit Unlock is a scheme, developed collaboratively with lenders and homebuilders. It allows first-time and existing buyers to purchase new-build homes with just a 5% deposit. It offers competitive mortgage products, making new homes more affordable. 

Are you thinking of buying a new home but struggling to come up with the deposit? Deposit Unlock is an innovative home ownership solution for you.

It is designed to help home buyers purchase new-build properties with lower deposits. It involves a partnership between house builders, mortgage lenders, and sometimes an insurance policy to reduce the risk for the lender.

This initiative makes home ownership more accessible, especially for first-time buyers struggling with large deposit requirements.

Who should consider using Deposit Unlock?

First-time buyers should consider Deposit Unlock or a home mover looking to buy a new-build home but are finding it challenging to meet traditional deposit demands.

It's particularly beneficial if you're seeking a competitively priced mortgage product while only being able to afford a smaller deposit.

We have a more detailed article on how to save for a deposit.

How does the Deposit Unlock scheme work?

Deposit Unlock allows you to buy a new-build home with a lower deposit than typically required.

Home builders partnering in the scheme contribute to mortgage indemnity insurance. This insurance covers the lender if you default on your mortgage.

The deposit you need can be as low as 5%, making it an attractive low-deposit mortgage solution. Your mortgage will still cover the remaining property cost, similar to traditional mortgages, but with the added security that this insurance provides to the lender.

Deposit Unlock scheme's features

The most attractive benefit

With Deposit Unlock, prospective homebuyers have the opportunity to finance a newly constructed property by securing a mortgage that covers an impressive 95% of the purchase price.

The scheme allows buyers to get a low deposit mortgage at competitive interest rates. You should know however that subject to participation of the lender on specific homes and developments, the rates and maximum purchase price vary.

Maximum purchase price and loan limits

Under the Deposit Unlock scheme, the maximum purchase price of a property and the maximum loan amount you can take out vary. It's common for lenders to set a cap on the purchase price, aligning with regional property values and their lending criteria.

These limits depend on the participating lender and the location of the new-build home.

Eligibility criteria for buyers

To use Deposit Unlock, you must meet specific criteria. Generally, both first-time buyers and home movers can avail of the scheme but Buy to Let borrowers are normally excluded.

Eligibility often hinges on the property being a new-build, the borrower's creditworthiness, and the mortgage meeting the lender's standard requirements.

The property's energy efficiency ratings and its location within the UK, such as in the Northeast, may also influence eligibility.

Deposit Unlock vs Help to Buy

Deposit Unlock schemes allow buyers to purchase a new-build home with a lower deposit. These schemes can be more flexible.

They cater to a broader market, including previous homeowners, which Help to Buy often excludes.

Deposit Unlock does not confine buyers to specific developers or properties, unlike Help to Buy, which is only available for properties built by home builders registered with the scheme. This flexibility enables you to explore a wider range of properties and locations.

You can also learn what Help to Buy will be replaced with.

Deposit Unlock vs. traditional mortgages

Most traditional mortgages demand a higher deposit, usually around 10% to 15%. In contrast, Deposit Unlock scheme often require a significantly lower deposit, sometimes as low as 5%.

This lower entry barrier is particularly beneficial in today’s economy, where saving for a large deposit can be challenging.

Also, mortgage lenders participating in Deposit Unlock, such as Newcastle Building Society and Nationwide Building Society, often offer competitively priced mortgage products. These products might come with added benefits like lower interest rates or waived fees.

Deposit Unlock can also be a boon for those buying energy-efficient new-build homes, aligning with the trend towards more sustainable living. Learn more about energy proficiency certificate of a property.

Why should you invest in a new-build?

Investing in a brand-new home offers a wonderful experience for both first-time buyers and existing homeowners.

A new home provides you with a clean slate – a blank canvas upon which you can create your desired living space and express your personal style without any constraints.

You'll enjoy the benefits of pristine, newly installed kitchens and bathrooms, along with the reassurance that your property is designed with safety, energy efficiency, and low maintenance in mind.

Benefits of Deposit Unlock

For first-time buyers

  1. Lower deposit: Deposit Unlock schemes significantly reduce the deposit you need to purchase your first home, typically around 5% of the property's value. This change means owning a home is more attainable for you, even if savings are modest.

  2. Lower interest rates: interest rates under the Deposit Unlock scheme are often competitive. Unlike standard mortgage products, these rates take into account the reduced risk to lenders, backed by guarantees from participating home builders.

  3. Better mortgage deals: you can find mortgage deals that might not be available through conventional borrowing methods. The scheme offers a practical alternative to help you climb the property ladder with lower monthly repayments.

  4. Brand new house: for many, the dream of buying a new-build feels out of reach. Using Deposit Unlock, you can buy a brand-new home without a hefty deposit. This scheme often includes properties by major developers and participating home builders, broadening your choices. You're no longer limited to older, possibly less desirable properties within a lower budget range.

  5. More options: The flexibility to choose from various new-builds across the UK, without being constrained by higher deposit demands, is a key advantage. This freedom helps ensure your first home meets not just your budget but also your aspirations and needs.

  6. Financial benefits when moving: moving home is a significant step, often prompted by changing personal or family circumstances. For home movers, Deposit Unlock offers a swift and less financially burdensome route. The lower deposit requirement means you can reallocate finances to other moving costs or home improvements.

  7. Your equity can go further: Deposit Unlock also caters to those who might not have a large amount of equity in their current home but are looking to move. It's a practical solution to scale the property ladder, making the next step more accessible and manageable. With this scheme, the equity from your current home can go further. You might be aiming for a larger property or a more desirable location.

Risks and considerations in using Deposit Unlock

  1. Long-term impact on mortgage payments: using a Deposit Unlock scheme often means borrowing more against your home, leading to higher mortgage payments over time. You should consider the total amount you'll repay, including interest rates, to understand the financial commitment fully.
  2. Insurance costs and coverage: house builders pay an insurance premium in the Deposit Unlock scheme, which protects the lender, not you. Remember, as a homeowner, you'll still need separate building and contents insurance to protect your investment.

FAQs

Is Deposit Unlock limited to first-time buyers?

Deposit Unlock schemes aren't exclusive to first-time buyers. While they certainly help those stepping onto the property ladder, home movers can also benefit. The scheme's goal is to make buying a home more accessible, regardless of your current homeowner status.

If you're upgrading or downsizing, deposit unlock provides an avenue for purchasing a new-build without a hefty deposit. Keep in mind, the individual criteria of participating lenders and the house building industry's regulations still apply.

Can Deposit Unlock be used for any property?

Deposit Unlock primarily targets the new-build sector. This focus stems from collaboration with the Home Builders Federation and housebuilding industry to bolster new home sales. The maximum purchase price and property type eligible under Deposit Unlock vary, often dictated by the individual terms of participating lenders like Newcastle Building Society or Accord Mortgages.

Generally, the scheme favours new-builds, and your mortgage broker can offer mortgage advice specific to these properties. For those wishing to buy a new-build, using Deposit Unlock can be a viable path, albeit limited to properties within the scheme's structure.

How does lender participation in the scheme affect me?

The variety and terms of Deposit Unlock schemes are shaped by lender participation. Each participating lender, be it the first lender like Newcastle Building Society or more lenders joining later, can set unique conditions. These might include different interest rates, maximum value limitations, and specific eligibility criteria. As lenders' approaches vary, your choice of lender remains unchanged in its significance.

Seeking out a mortgage broker or consulting a build mortgage advisor is recommended for tailored mortgage advice. They can help decipher the terms offered by different lenders, ensuring you find a competitively priced mortgage that fits your needs in the house-building industry.

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