What is the Deposit Unlock scheme?

If you dream of becoming a homeowner but don’t have the large deposit you need to make it happen, Deposit Unlock could be perfect for you.

Let’s explore how it works, why it’s been introduced and how it compares to other options.  

Saving for a deposit in 2023, on top of rising household costs for everything from rent to utilities, isn’t easy.

This is where the Deposit Unlock scheme comes in, allowing home movers with an existing mortgage and first-time buyers to access 95 per cent mortgages on new builds.  

When you only need a deposit of five per cent, finding your perfect property and making it feel like a home might finally be within reach.   

What is Deposit Unlock?

Deposit Unlock is a scheme developed by the Home Builders Federation and reinsurance firm Gallagher Re.

It’s an affordable, low-deposit mortgage solution designed to help people onto the property ladder and encourage the purchase of new homes.

It’s exclusive to new builds, so you won’t be able to find a Deposit Unlock property that isn’t a new build. 

The scheme reduces the risk for mortgage lenders, protecting them from some of the loss they’d incur if a buyer failed to keep up with their mortgage payments and defaulted.

This enables the availability of a five per cent deposit in a housing landscape where 95 per cent LTV (Loan-to-Value) mortgages have become few and far between. 

Three lenders and many house builders are already participating, and as the scheme is relatively new, more are expected to follow suit.

Hopefully, Deposit Unlock will fill some of the gap left following the closure of the Help to Buy Equity Loan scheme in October 2022.  

Why choose a Deposit Unlock home? 

Deposit Unlock works like a regular 95 per cent LTV mortgage from the homebuyer's perspective.

You supply a five per cent deposit and take out a mortgage for the remaining amount.

You move into your home and pay your mortgage monthly until you’ve paid off this amount and all accrued interest.

The pros of choosing a Deposit Unlock home are: 

• You don’t need to save for as long to get a mortgage 
• You can access competitive interest rates, even with a low deposit 
• You don’t need to be a first-time buyer to be eligible (as you did with the Help to Buy Equity Loan) 
• You don’t have to be within a specific income limit (as you will if you’re not a first-time buyer and you’re purchasing a shared ownership home) 
• New builds tend to use less energy than older homes, potentially saving you money 

On the flip side of the coin, we must also consider the cons you might run into if you choose a Deposit Unlock property: 

• Since you’re borrowing more for a 95 per cent mortgage, you’ll pay higher interest rates and face a higher risk of negative equity  
• You’ll have fewer choices of mortgage deals since only a few mortgage lenders are participating 

• You might find it more challenging to remortgage  
• You might risk overstretching yourself financially 
• New build homes can lose their value more quickly than older/pre-owned homes 

What’s a better scheme – Deposit Unlock or shared ownership?

When you buy a Deposit Unlock property, you’re the complete legal owner, as you would be with any other property you took out a mortgage on.

When you buy through a shared ownership scheme, you’re a part-owner of the property and remain liable for rent on the share of your home you don’t own.  

Shared ownership is a bridge between renting and owning, while Deposit Unlock is designed to help you own without needing a large deposit.

To determine which scheme suits you better, consider: 

• Income – A mortgage lender will typically only loan you a maximum of four-and a-half times your household income. If your income doesn’t meet the threshold necessary for the kind of home you want or need, shared ownership would better suit you, allowing you to staircase (increase the percentage share you own in your home) up to 100 per cent ownership over time 
• Legal responsibility and fees – Some people like shared ownership because it equals shared responsibility if something goes wrong. Some prefer to own outright as you would through Deposit Unlock, avoiding rent charged on the unowned portion and, in some cases, even avoiding paying service fees for common areas. 
• Freedom – Since you’re still a tenant under shared ownership, more rules are applied to you. You can’t sub-let a shared ownership property until you’ve staircased to 100 per cent ownership, and you could still be evicted on certain grounds (including sub-letting) 

Who’s participating in the Deposit Unlock scheme?

There are three lenders participating in the Deposit Unlock scheme as of March 2023 – Accord Mortgages, Nationwide Building Society and Newcastle Building Society.

There are then many different UK home builders participating, including but not limited to: 

• Barratt Homes 
• CALA Homes Limited 
• Croudace Homes 
• David Wilson Homes 
• Nicholas King Homes 

• Taylor Wimpey 

If you can get a mortgage from one of these lenders on an eligible property from one of these home builders (the complete list of home builders is available on the Home Builders Federation website), you’ll be able to access a 95 per cent LTV mortgage.

You might even find a perfect home that you’d never otherwise have been able to afford. 

You should now better understand whether the Deposit Unlock scheme might be a good option on your home-buying journey.

Every choice has its pros and cons, and every situation is unique.

We’d recommend speaking with a mortgage broker if you remain unsure about the route you’d like to take.