What is the Deposit Unlock scheme?

If you dream of becoming a homeowner but don’t have the large deposit you need to make it happen, Deposit Unlock could be right for you.

Let’s explore how the scheme works, why it’s been introduced and how it compares to other options.  

Saving for a deposit in 2024, on top of high household costs for everything from rent to utilities, isn’t easy.

This is where the Deposit Unlock scheme comes in. It allows home movers with an existing mortgage and first-time buyers to access 95% mortgages on new builds.  

When you only need a deposit of 5%, finding your ideal home might finally be within reach.   

What is Deposit Unlock?

Deposit Unlock is a scheme developed by the Home Builders Federation and reinsurance firm Gallagher Re.

It’s an affordable, low-deposit mortgage solution designed to help people onto the property ladder and encourage the purchase of new homes.

It’s exclusive to new builds, so you won’t be able to find a Deposit Unlock property that isn’t a new build. 

The scheme reduces the risk for mortgage lenders, protecting them from some of the loss they would incur if a buyer fails to keep up with their mortgage payments and defaults.

This enables the availability of a 5% deposit in a housing landscape where 95% loan-to-value (LTV) mortgages have become less common.

Why choose a Deposit Unlock home? 

Deposit Unlock works like a regular 95% LTV mortgage from a homebuyer's perspective. So, you need a 5% deposit and take out a mortgage for the remaining amount.

You move into your home and pay your mortgage monthly until you’ve paid off this amount and all accrued interest.

The pros of choosing a Deposit Unlock home are: 

• You don’t need to save for as long to get a mortgage.
• You can access competitive interest rates, even with a low deposit.
• You don’t need to be a first-time buyer to be eligible (as you did with the Help to Buy equity loan).
• You don’t have to be within a specific income limit (as you will if you’re not a first-time buyer and purchasing a shared ownership home).
• New builds tend to use less energy than older homes, potentially saving you money.

However, you must also consider the cons if you choose a Deposit Unlock property: 

• Since you’re borrowing more for a 95% mortgage, you’ll pay higher interest rates and face a higher risk of negative equity.
• You’ll have fewer choices of mortgage deals since only a few mortgage lenders are participating.

• You might find it more challenging to remortgage.
• You might risk overstretching yourself financially.
• New build homes can lose their value more quickly than older and pre-owned homes.

What’s a better scheme – Deposit Unlock or shared ownership?

When you buy a Deposit Unlock property, you’re the complete legal owner, as you would be with any other property you took out a mortgage on.

When you buy through a shared ownership scheme, you’re a part-owner of the property and remain liable for rent on the share of your home you don’t own.  

Shared ownership is a bridge between renting and owning, while Deposit Unlock is designed to help you own without needing a large deposit.

To determine which scheme suits you better, consider: 

• Income: A mortgage lender will typically only loan you a maximum of four and a half times your household income. If your income doesn’t meet the threshold necessary for the kind of home you want or need, shared ownership may be more suitable, allowing you to staircase (increase the percentage share you own in your home) up to 100% ownership over time.
• Legal responsibility and fees: Some people like shared ownership because it equals shared responsibility if something goes wrong. Some prefer to own outright as you would through Deposit Unlock, avoiding rent charged on the unowned portion and, in some cases, even avoiding paying service fees.
• Freedom: Since you’re still a tenant under shared ownership, more rules are applied to you. You can’t sub-let a shared ownership property until you’ve staircased to 100% ownership, and you could still be evicted on certain grounds (including sub-letting). 

Who’s participating in the Deposit Unlock scheme?

There are five lenders participating in the Deposit Unlock scheme as of May 2024 – Accord Mortgages, Bluestone Mortgages, Nationwide Building Society, Newcastle Building Society and Perenna.

There are then many different UK home builders participating, including but not limited to: 

• Barratt Homes 
• CALA Homes
• Countryside Properties
• David Wilson Homes 
• Nicholas King Homes 
• Taylor Wimpey 

If you can get a mortgage from one of the above lenders on an eligible property from one of these home builders (the complete list is available on the Home Builders Federation website), you’ll be able to access a 95% LTV mortgage.

You might even find a home you’d never otherwise have been able to afford. 

You should better understand whether the Deposit Unlock scheme might be a good option on your home-buying journey.

Every choice has its pros and cons, and every situation is unique.

We recommend speaking with a mortgage broker if you're planning to buy your own home as they can ensure you find the right mortgage for your needs.