What is the Deposit Unlock scheme and how does it help first-time buyers?

Full answer

Deposit Unlock is an industry-backed scheme created by the Home Builders Federation to help buyers purchase a new-build home with only a 5% deposit. New-build properties have historically been harder to mortgage at high loan-to-value because lenders worry about the 'new-build premium' - the risk that a new home loses value once it is no longer brand new. Deposit Unlock addresses this through a mortgage indemnity arrangement: participating housebuilders contribute to an insurance pool that compensates lenders for losses if a borrower defaults and the property is repossessed at a shortfall. The key point for buyers is that it is not a loan or an equity share - unlike the former Help to Buy equity loan, the government has no stake and you owe nothing extra. You take out an ordinary repayment mortgage at up to 95% loan-to-value from a participating lender, put down your 5% deposit, and repay capital and interest as normal. The insurance protects the lender, not you, so you still need to keep up repayments and your home can be repossessed if you default. It is available to both first-time buyers and home movers, on a participating builder's new-build home, up to a value cap that the scheme and lender set. Eligibility, the maximum property price, and which builders and lenders take part all change over time, so check current details with the builder and on the Home Builders Federation site before relying on it. Worked principle: on a 250,000 new-build, a 5% deposit is 12,500, leaving a 237,500 mortgage. Affordability is assessed in the usual way against your income and outgoings, and the interest rate on a 95% mortgage is typically higher than on a lower loan-to-value deal, so monthly payments are larger than with a bigger deposit. Use the mortgage calculator to estimate monthly repayments, and the stamp duty calculator to check any duty due on the purchase price.

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