How does the Deposit Unlock Scheme work?
Released as an alternative to the Government’s Mortgage Guarantee Scheme the ‘Deposit Unlock Scheme’ is now available for the purchase of new-build properties.
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What is the Deposit Unlock Scheme?
The Deposit Unlock Scheme allows buyers with a 5% mortgage deposit to purchase their home by means of a 95% mortgage. This option is limited to new builds and is a direct collaboration between lenders and the Home Builders Federation.
It was released as an alternative to the Government’s Mortgage Guarantee Scheme and its available to both first-time buyers and home movers.
Initially brought to the market in June 2021 with just one mortgage provider participating in the scheme. However, developments are now starting to be seen with an increased number of lenders starting to offer mortgages. And with further talks ongoing the anticipation is that even more lenders will enter.
What lenders offer Deposit Unlock?
There are three lenders that offer this scheme:
Which home builders provide Deposit Unlock?
The list below has been taken from the Home Builder Federation. It outlines all the home builders that currently provide this scheme.
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What criteria needs to be met for me to qualify?
Some key points to consider are:
- Available for a new-build home up to a value of £330,000.
- For all houses and 2-bedroom apartments but excludes studios and 1-bedroom apartments.
- Not available for buy-to-lets.
- For first-time-buyers and home movers.
- For mortgages with a loan to value ratio between 90.01-95%.
- Can be used in conjunction with Part Exchange.
Should I use the Deposit Unlock Scheme?
When deciding what scheme to use, you’ll need to weigh up both the pros and cons to ensure you’re making the right decision. Like with any housing deposit scheme, the Deposit Unlock Scheme has its own benefits and drawbacks.
One of the main drawbacks is the limited options of lenders and properties. As 3 lenders offer this scheme you may end up paying more in comparison to a standard mortgage. Furthermore, only certain new build house builders can be used, again reducing you choices which could cost you more. However, as you can get a mortgage with a 5% deposit this could cancel out the more expensive property or mortgage rate.
One final factor to consider is that as soon as you move into your new build home, it’s no longer considered a ‘new build.’ This means the property’s value could potentially drop instantly depending on the market. Although, if you plan to live in the property for many years this may not affect you at all.
If you’re uncertain about which path to take, our team of specialists is ready to assist you. They have decades of experience in interest-only mortgages and an in-depth understanding of the UK mortgage market.
We have close working relationships with a wide range of lenders, including those on the high street and niche-market specialists. It also means that we can access better rates for interest-only mortgages than if you had approached them directly yourself.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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