Deposit Unlock Scheme Explained

If you’ve always dreamt of buying a new-build home but felt they were out of your reach, the Deposit Unlock Scheme could be the solution you’re looking for. 

What is the Deposit Unlock Scheme?

Launched in June 2021, the Deposit Unlock Scheme offers first-time buyers and home movers the opportunity to buy a new-build house or flat with as little as a 5% deposit and borrow the remaining amount using a 95% loan-to-value mortgage.  

The scheme was developed as a collaboration between several Home Builders Federation (HBF) trade body members and Reinsurance firm Gallagher Re. It was initially created as a private-sector mortgage guarantee scheme to replace the government’s Help-To-Buy initiative, which is no longer available in England or Scotland. 

How is this possible? 

Traditionally, mortgage lenders ask for a higher deposit on new-build properties (typically 15%- 25%) to cover the premium on the purchase price for newly built homes and avoid plunging buyers into a negative equity situation or leaving lenders unable to recoup their losses in the event of a repossession.  

With the Deposit Unlock Scheme, participating home builders use a portion of the sale proceeds from each property to pay for mortgage indemnity protection, backed by Gallagher Re, which covers any possible losses and reduces the risk for mortgage lenders offering such high loan-to-values. 

The perceived increased risk that usually accompanies buying a new-build home can also often mean the mortgage interest rates available from lenders are less competitive. However, the insurance cover provided through the Deposit Unlock Scheme also encourages mortgage lenders to offer more attractive rates. 

Who is eligible for the Deposit Unlock Scheme?

The Deposit Unlock Scheme is available to both first-time buyers and current homeowners looking to buy a new-build property with at least a 5% deposit available for a mortgage (you can put down a higher deposit if you wish)

The other eligibility criteria are as follows: 

• The property you buy must be a new-build house or flat with at least two bedrooms, to be used as your primary residence and valued below £750,000

• The scheme cannot be used for buy-to-let investment properties, studios or one-bedroom apartments

• You must purchase a property from a participating home builder (see below)

In addition, you’ll need to pass the lender’s mortgage affordability assessment and standard lending criteria. To find out more about this, read our guide: What Mortgage Lenders Look For In Applicants. 

Which mortgage lenders are available? 

The following mortgage lenders are currently participating in the Deposit Unlock Scheme, with many more expected to join:

• Nationwide Building Society

• Accord Mortgages

• Perenna Bank Plc

• Bluestone Mortgages

Each lender has its own rules and eligibility criteria, which will vary. For this reason, it’s recommended that you speak with a mortgage broker (like us!) before approaching a lender directly. 

Your mortgage broker will be able to advise you on which lender offers the better chance of success based on your personal circumstances. If you make an enquiry, one of our Mortgage Experts will contact you to get started. 

How to buy a new home using the Deposit Unlock Scheme

If you’re ready to buy a new home using Deposit Unlock, the process is as follows: 

Apply for a Decision-In-Principle

Before you start looking at properties, it’s a good idea to know how much you might be able to borrow. Applying for a decision-in-principle doesn’t guarantee your mortgage, but it does provide you with a figure of how much you could borrow and a basis for the property values you can then search for. 

Find a participating developer

The Deposit Unlock Scheme is only available through participating developers. The choice is pretty broad, with over 80 home builders available, including well-known names such as Barratt Homes, Persimmon, Davidson Group, Taylor Wimpey and Redrow. 

You can see the complete list of developers on the Home Builders Federation’s* dedicated website page. 

Get a confirmation letter

Once you’ve decided on a property you’d like to buy, ask the developer for a confirmation letter verifying that the house or flat is available through the Deposit Unlock Scheme.  

Apply for a mortgage

At this stage, you now need to secure the 95% loan-to-value mortgage required to buy your new home. This is where we can help!

Our team of Mortgage Experts can help guide you through the mortgage application process from start to finish, including choosing the participating lender most suited to offering the approval you need based on your personal situation. 

How does Deposit Unlock compare with the Mortgage Guarantee Scheme?

Both the Deposit Unlock Scheme and the Mortgage Guarantee Scheme provide prospective buyers with the chance to purchase their first or next home with just a 5% deposit and a 95% mortgage. 

For Deposit Unlock, the lender's risk is covered through Gallagher Re’s indemnity insurance, which is paid for by participating house builders, whereas the government covers this for the mortgage guarantee scheme. 

Under the mortgage guarantee scheme, you can buy both newly built and existing properties. For Deposit Unlock, you can only buy new-build homes. Also, more participating mortgage lenders are currently available for the mortgage guarantee scheme. However, the list for Deposit Unlock is expected to grow significantly as the scheme progresses.   

Can you apply for the Deposit Unlock Scheme with bad credit?

Yes, it’s possible, but it could be more difficult than for someone with a good or perfect credit score. It depends on the type of bad credit issue you’ve had, how long ago it happened and the amount involved. 

Choosing the right mortgage lender could also make a big difference, particularly as only a select group of lenders currently participate in the Deposit Unlock Scheme. 

Both Bluestone Mortgages and Perenna have a strong track record of helping people with bad credit scores and assess applications on a case-by-case basis. These lenders are available only through a mortgage broker, and both already have great working relationships with us!