Everything you need to know about the new “Deposit Unlock” mortgage scheme - Oundle & Stamford


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Everything you need to know about the new “Deposit Unlock” mortgage scheme

A happy couple signing some paperwork

In recent years, the UK housing market has enjoyed strong growth. According to figures from the Office for National Statistics, the average UK home cost £271,000 in November 2021. While this is obviously good news for homeowners, it also poses a problem for prospective buyers.

If you’re hoping to take that all-important first step onto the property ladder, or you own a home and you’re looking to move, affording a mortgage deposit can be a major hurdle to overcome. This is where the new “Deposit Unlock” scheme might be able to help you.

Read on to find out what it is and how you could benefit.

The Deposit Unlock scheme lets you secure a mortgage with only a 5% deposit

To put it simply, the Deposit Unlock scheme is a collaboration between lenders and homebuilders to help first- and second-time homebuyers. Under the scheme, lenders will offer 95% loan-to-value (LTV) mortgages, making it easier for people to afford a deposit. It means you could need a deposit of just 5% if you want to buy a property.

If you’ve been struggling to save up enough, this scheme could be ideal for you, as it is available throughout the country. Of course, it’s important to bear in mind that you can only use it to buy a new-build property that is between the value of £25,000 and £750,000.

Deposit Unlock is set to replace the government’s “Help to Buy” scheme, which has supported first-time buyers for several years now, but is ending in March 2023. As we discussed in a previous article, the existing scheme involves the government loaning you up to 20% of the cost of a home (40% in London).

While this is obviously useful, one major advantage that Deposit Unlock has over Help to Buy is that it is available to more than just first-time buyers. This means that it can help you if you’re hoping to move up the property ladder, as well as climb onto that first rung on it.

The scheme reduces the risk to lenders, making them more willing to offer larger mortgages

Typically, when buyers put down a small deposit, it raises the risk of negative equity as the property’s value only has to fall by a small amount to be lower than the value of the mortgage.

This means that if the lender repossesses the house, they could potentially not get as much back as they lent out and so would lose money. To avoid this prospect, they often take out Indemnity Insurance as a form of protection.

However, with the Deposit Unlock scheme, it is the housebuilder who has to pay for this cover instead.

This makes loaning money for the purchase of the property much less risky, encouraging lenders to offer more and cheaper mortgages. This means they may be more likely to offer you a mortgage with a higher LTV ratio.

The scheme isn’t widely backed so there may not be a wide range of mortgage products available

Of course, while this all seems good so far, there are a few drawbacks to consider. Primarily, as we mentioned earlier, this is only available for buying new-build properties. So, if you want to buy a slightly older house, you won’t be able to apply.

Another issue with new-builds is that they tend to be more expensive than older houses, which may mean that the property costs more than other homes in the same area.

Furthermore, Deposit Unlock isn’t currently widely backed by many lenders. As of February 2022, Nationwide are the only high street lender to support this scheme.

While other lenders may do so in the future, this means that there may only be a limited number of mortgage products for you to choose from.

On top of this, you may have to pay higher interest rates if you’re only planning to put up the minimum 5% mortgage deposit. In the long term this could cost you more money than if you waited to save up for a larger one.

Working with an expert can help you find the mortgage that’s right for you

When you’re trying to buy a home, it can be tempting to rush in and buy the first property you can. However, while a low-deposit mortgage may seem attractive, they can have significant downsides and so may not be in your best long-term interests.

If you’re tempted to take advantage of the Deposit Unlock scheme, but aren’t sure if it’s right for you, seeking professional advice can help.

Working with an expert can enable you to make a properly informed decision, making sure that you take into account long-term considerations as well as short ones. This can help to give you greater peace of mind to know that you’re getting the best mortgage for your needs.

Get in touch

If you want to get onto the property ladder and would like to know if the Deposit Unlock scheme could benefit you, we can help. Email info@oundleandstamfordmortgages.com or call us on 01832 272653.

Please note:

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.