5% Deposit New-Build Initiatives

Across the mortgage market, availability of low deposit mortgages for new-build properties is scarce. The Help to Buy Equity Loan scheme has supported the new-build market since it began in 2013. However, the end of the scheme is fast approaching with the deadline for new applications on the 31st October 2022 and the deadline for completions on the 31st March 2023. With the scheme ending, this leaves a void in the market for fresh 5% deposit new-build initiatives to support the housing sector.

In April 2021, the Government announced the introduction of the mortgage guarantee scheme. This provided partial risk mitigation for lenders in offering 5% deposit mortgages through to the end of 2022. For buyers, a mortgage backed by the mortgage guarantee scheme functions exactly like any standard mortgage. While the scheme is not exclusive to new build properties, it can be used on a new-build, subject to lending criteria. The scheme has successfully increased the number of lenders offering 95% mortgages, but this is likely to fall once Government support ends. On new-build properties, there’s barely a handful of lenders offering standard 95% LTV mortgages, irrespective of any public or private scheme. Skipton Building Society are currently the most prominent of these.

In terms of leading 5% deposit new-build initiatives looking to fill the void of the Help to Buy Equity Loan, there are three new schemes we’ll explore further in this week’s blog.

Deposit Unlock

An active scheme backed by reinsurance broker Gallagher Re, in conjunction with the Home Builders Federation (HBF). Gallagher Re are supporting lenders in offering 95% mortgages on new-build properties, available to first time buyers and existing homeowners. Leading house builders including Barratt, Taylor Wimpey, Redrow, Countryside, Persimmon, Bloor and Bellway have confirmed properties they build will be available to purchase through Deposit Unlock. On the front end from a buyer’s perspective, the scheme appears no different to a standard 95% mortgage so will be much simpler than Help to Buy. In the background, a fee is paid by the house builder to Gallagher Re to facilitate the initiative. Lenders currently participating in the scheme include Newcastle Building Society, Nationwide and Accord.

Own New

Officially launched this week, Own New is a product of Market Mortgage which is backed by major shareholder Capita. Own New facilitates first time buyers and existing homeowners to purchase new-build properties through 95% mortgages. Similar to Deposit Unlock, Own New appears no different to a standard 95% mortgage from a buyer’s perspective. In the background, the onus is still on house builders to pay a fee to facilitate the initiative. However, the fee required on completion is lower than what is required through Deposit Unlock. Further differences relate to how the scheme is funded and that all house builders can sell properties via Own New, providing they are registered with the scheme. Currently, Kensington is the only mortgage lender confirmed to be participating.

First Homes Scheme

A government-backed initiative available exclusively to first time buyers earning below £80k, or £90k in London. First Homes Scheme properties are sold at a minimum 30-50% below the market value. Mortgages are available on 95% of the discounted purchase price meaning only a 5% deposit on the discounted price is required. Properties built under the scheme are effectively ring-fenced by the local authority, to be sold to first time buyers only. Once the property has been lived in and the homeowner looks to move, they will have to sell to someone eligible for the First Homes Scheme. If they have been unable to sell the property after 6 months, sellers can request to remove the First Homes Scheme restriction. The property would then be available to all at full market value with the percentage discount applied when the owners bought the property being repaid to the local authority once sold.

The accessibility of low deposit mortgages on new-build properties is essential for the housing market. It facilitates home ownership and ensures demand remains high which gives house builders cause to continue increasing the housing supply. If you’re interested in any of the 5% deposit new-build initiatives discussed or you have any mortgage or insurance related queries, we’re here to help with free, professional advice.