A new private sector initiative to help people buy a new build home with just a 5% deposit was launched in June this year and is now gaining momentum.
The ‘Deposit Unlock’ mortgage indemnity scheme is the result of collaboration between the House Builders Federation and global reinsurance broker Gallagher Re.
There are 17 housebuilders signed up to the scheme so far who are responsible for more than 60% of new housing in the UK. The scheme will be available on more than 1,000 housing development sites and this will increase as more house builders come on board.
Around 20 lenders are looking to provide Deposit Unlock mortgages with two lenders, Newcastle Building Society and Nationwide, having announced their products.
Newcastle’s Deposit Unlock mortgage currently lends on properties up to the value of £330,000 but will be raising this soon to £600,000, while Nationwide will lend up to a maximum loan of £750,000.
This initiative will open up the 95% LTV market and help more people onto the housing ladder as raising a deposit is the biggest barrier for first-time buyers. But the scheme is not just aimed at first-time buyers as it is also available to home movers.
The alternative 95% LTV options are the Help to Build (HTB) Equity Loan scheme, shared ownership and a handful of 95% mortgages which are only available for second hand properties.
Help to Buy will close in March 2023, so this Deposit Unlock scheme is timely. Changes brought in March 2021 mean the HTB scheme can now only be accessed by first-time buyers while regional caps have been introduced on the property value.
But HTB has been hugely successful with 328,506 properties bought between its launch on 1 April 2013 and 31 March 2021. Each year the number of sales get bigger showing the huge demand out there. The total value of properties sold under HTB during the same eight-year period reached £91.1 billion.
Shared ownership can also be accessed with a 5% deposit but only a share of the property is owned while the rest is rented, usually from a housing association.
At Just Mortgages’ new build division we are fully supportive of the scheme and will be advising clients on the mortgages available. We are on both the Newcastle and Nationwide panels and working with Keepmoat, one of the house builders involved in the scheme. Once the home buyer has committed to the purchase one of our advisers will explain how it all works and apply for and progress the mortgage on their behalf.
Francesco Di Pietro, head of intermediary mortgages at Newcastle Intermediaries, said: “As the first lender to launch products under Deposit Unlock we’ve already seen a clear interest in the scheme from brokers and their clients.
“The initiative is truly innovative and is a great example of industry collaboration helping to provide low deposit borrowers with more options towards achieving that dream of home ownership.”
Andy Dean, head of new build at Nationwide, added: “For a long time, the sector has been dominated by the Help to Buy scheme but with that due to end in around 18 months’ time, the launch of the Deposit Unlock scheme will provide a welcome alternative and replacement in helping people into a home of their own.”
Deposit Unlock has been developed through cross industry collaboration between house builders, insurers and lenders. Now it is time for brokers play their part and help buyers to find the right finance for their new home.
This scheme has the potential to be as successful as HTB and will bring much needed assistance to those people with a low deposit but the ability to make monthly mortgage repayments.
John Doughty is financial services director at Just Mortgages’ new build division