What is the new Deposit Unlock Scheme?
With the popular Help to Buy Scheme drawing closer to an end, in 2023, a new scheme called Deposit Unlock will launch with the aim of helping buyers obtain larger mortgages on new builds.
Help to Buy allowed first-time buyers to access a loan from the Government, covering 20% of the purchase price, lessening the risk to lenders. This will, however, close in 18 months’ time.
The new scheme will mean that first time buyers AND second steppers can soon buy a new-build property with as little as a 5% deposit, without the need for government help.
Currently, lenders often require a minimum deposit for new builds, usually between 15 and 25%, putting new builds out of reach for first-time buyers. Lenders are also often uneasy giving mortgages to new build buyers because they typically lose value in the first few years. This is known as something called a New Build Premium – the benefit of having a brand-new home. For this reason, it can be hard to sell a new build home because the second buyer will not have the same benefits. Should the home’s first buyer not be able to pay their mortgage and the home is repossessed, the sale of the property will ultimately be at a loss.
Usually, lenders will take out insurance on mortgages that they might perceive as risky. The insurance means that lenders can recoup some of the costs should the home become repossessed, however, this can be expensive.
Deposit Unlock hopes to overcome this by the housebuilders paying to insure the mortgages, instead of lenders, using a portion of the money they receive from the sale.
Nationwide Building Society is the second lender to sign up to the new Deposit Unlock scheme, after a successful trial in the North East back in June. The trial began with the Newcastle Building Society, offering mortgages on new builds under the scheme with a maximum property value of £330,000. Unlock Deposit scheme, together with Nationwide will mean that standard new build loans can be offered between £25,000 and £750,000.
Anyone interested in taking up the scheme will need to check if their housebuilder and lender are taking part in the scheme, currently set to open at the end of October. The Home Builders Federation will update a full list of participating home builders and lenders in due course.
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