HBF Deposit Unlock Mortgages

As the availability of the government’s Help to Buy equity loan scheme comes towards a close, the building industry has stepped in to provide another chance for buyers to purchase a home with as little as a 5% deposit, without bearing the brunt of high interest rates and penalties.

Here we look in detail at what a Deposit Unlock mortgage is, what it involves, who qualifies and how to go about applying for one.

What is a Deposit Unlock mortgage?

It is a type of loan that’s been devised by the Home Builders Federation (HBF) in an effort to give help to house buyers who want to purchase a new build property without a hefty deposit.

Typically, lenders are wary of offering a high loan-to-value (LTV) mortgage on newly built homes because of the risk of depreciation that can come with such properties, and those that do will often attempt to offset this risk by attaching high interest rates to them.

Up until recently, help was offered via the Help to Buy equity loan scheme, which involves borrowers being able to put down a 5% deposit, with the remaining balance being made up with a loan from the government (up to 40%) and a lower LTV mortgage from the lender. However, this scheme is now due to end in March 2023, with applications closing as soon as October 31, 2022.

While it’s not a direct replacement for this scheme, the building industry has stepped in with the Deposit Unlock scheme to provide a similar product to would-be borrowers via participating lenders and house builders.

It’s not a fully established or in-demand initiative yet, but considering the Help to Buy scheme saw a total of £22.5 billion in government loans, it is expected that the appetite will be out there as time goes on.

How does the scheme work?

Putting down just 5% deposit for a mortgage would usually result in facing very high interest rates, and in the case of a new build property, many lenders wouldn’t consider your application at all.

A Deposit Unlock mortgage intends to give lenders the confidence to offer attractive rates to 95% borrowers, safe in the knowledge any risk is offset by participating builders taking on the indemnity.

Building firms use part of the sale of a new home to pay for insuring a portion of the mortgage, meaning lenders will only have to underwrite a smaller percentage of the mortgage, rather than be liable for 95% of it.

This effectively replaces the government’s top-up equity loan that was found in the Help to Buy scheme. This results in competitive rates being offered by the lenders who are signed up to the initiative, with the intention of long-term security for both borrower and lender.

What are the restrictions?

They are down to each lenders’ discretion, but the initiative’s blueprint caps the maximum mortgage at £750,000. The scheme is only available on new build homes, which does reduce choice somewhat.

Buyers are also restricted to the lenders who are participating in the scheme and particular building firms on board, although this number has steadily grown and is expected to expand as the scheme takes off.

Find out whether you qualify

You will still need to meet the criteria for securing a 95% mortgage based on affordability (income and outgoings) and your creditworthiness will also be taken into consideration, just like with any other kind of mortgage.

While each lender may insist on their own set of eligibility rules, many will refuse you if you will own another home upon completion of the sale, such as a buy-to-let.

Lenders’ stance varies on self-employed applicants, with Nationwide being closed to such individuals, but Newcastle Building Society is willing to consider them as long as they didn’t close down or receive government help during the pandemic. You can be either a first-time buyer or home mover to qualify.

Why you should speak to a broker before you apply

There are a number of things to consider before applying for this kind of loan, and a qualified and experienced broker will help you through the process.

They will have done their due diligence on this latest scheme and will understand the implications of taking part.

A reliable and impartial broker, like the ones we work with, would guide you through the decision and the Deposit Unlock application, with the focus on putting you in the best position and negotiating the best rates on your behalf.

If you get in touch we’ll arrange for a specialist in such schemes to contact you straight away.

Participating lenders and housebuilders

At the time of writing (August 2022) there are three lenders – Accord Mortgages, Nationwide Building Society and Newcastle Building Society – who provide Deposit Unlock Mortgages. However, it’s likely that more will sign up to the scheme going forward if there is demand for the product.

There are also 24 home builders on board, including well known names, such as Barratt Homes, Bellway, Persimmon, Redrow and Taylor Wimpey.

These signed-on firms equate to more than 60% of new build construction businesses, and there may be more that come forward as time goes on too.

While the landscape is constantly fluctuating, at the time of writing there are some great deals to be had, with some two-year fixed rate mortgages being as low as 2.67%.

How does Deposit Unlock compare to Help to Buy?

There are a number of differences between the two schemes, and the Deposit Unlock is not a direct like-for-like replacement for Help to Buy.

Let’s look at the key differences:

What are the alternatives?

If you don’t mind paying higher rates or aren’t interested in a new build property, you could apply for a regular 95% LTV mortgage. With the help of a good broker, this might be simpler than you think.

You could also look into a 95% Shared Ownership mortgage or if you’re considering building your own home instead, a Help to Build mortgage might also be worth exploring.

Get matched with a mortgage broker experienced in government schemes

Finding the right broker for such a specialist product will be crucial to the success of your Deposit Unlock application.

We listen to your circumstances and intentions, identify what kind of help you need, then get to work matching you with a specific specialist advisor.

The five-star rated experts will hold your hand through the process, offer guidance and support, and ultimately work to secure the right rate and deal for you.

This takes away the pressure on you to grasp a complex scheme that’s still in its infancy.

Call us today for a free consultation on 0808 189 0463 or make an online enquiry.