New-Build properties typically require a higher deposit with most mortgage lenders due to a greater risk of short-term depreciation caused by the “new-build premium”. The result of this is that standard 95% mortgages, requiring just a 5% deposit, are often not available for new-build properties. This leaves buyers either having to put down a larger deposit, which is not always possible, or look at alternative schemes to help purchase the home, such as Deposit Unlock..
Since 2013, the government-funded Help to Buy Equity Loan scheme has allowed people to purchase new-build homes with a 5% deposit. Help to Buy takes a 20% charge on the equity in the property meaning the lender only is required to offer a 75% mortgage. However, the Help to Buy Equity scheme is coming to an end in March 2023 and no state funded scheme is set to replace it. Demand for an alternative solution has seen Deposit Unlock emerge as the front runner to continue facilitating new-build purchases with a 5% deposit
So what is Deposit Unlock and how does it work?
Deposit Unlock is a mortgage indemnity scheme supported by Gallagher Re in conjunction with the Home Builders Federation (HBF). Gallagher Re are an insurance broker who are supporting lenders in offering 95% mortgages on new-build properties. Leading house builders including Barratt, Vistry, Keepmoat, Crest Nicholson and Bellway have all confirmed properties they build will be available to purchase through Deposit Unlock. Currently over 1,000 new build sites across the UK are offering the scheme with other major house builders expected to follow.
From the perspective of buyers, purchasing through Deposit Unlock is much, much simpler than Help to Buy. Available to first time buyers and existing homeowners, it bares closer resemblance to a standard 95% mortgage. Nothing has to be repaid unlike the equity share with Help to Buy. Ultimately, the success and longevity of Deposit Unlock will depend on the uptake from mortgage lenders. Newcastle Building Society were the first lender to offer Deposit Unlock products with Nationwide recently becoming the first major name to announce they will be participating. The announcement by Nationwide will hopefully begin a chain reaction seeing other big high street names following suit. Mortgage products offered will likely be slightly above standard 95% products but the current offering from Newcastle Building Society suggests this will not be too significant.
The importance of making new-build homes accessible is often under-valued as it is not just about the specific transaction and has knock-on effects to the whole housing market. Making new-build homes more accessible to buy keeps demand high. This ensures house builders continue building in the large volumes they currently are. An increased availability of housing helps control house price inflation by ensuring demand does not outweigh the supply.
If you’re looking at buying a new-build and want to know more about the Deposit Unlock scheme, feel free to get in touch! Alternatively, if you have any other mortgage and life insurance queries, we’re here to help with free, professional advice.