Rising house prices across the UK have made homeownership a challenge for many – particularly when it comes to saving enough money for a deposit.
It’s a problem industry heads have got together to try and solve through a new low-deposit mortgage scheme called Deposit Unlock, which enables prospective buyers and existing homeowners to buy a home with just a 5% deposit. So how does it work? Here’s all you need to know.
I would like to buy a new home, but I've only got a 5% deposit, what are my options?
If you’re struggling to get more than 5% together for a deposit, there are a few options now available to you.
The government-backed Help to Buy Equity Loan is probably one of the most popular low-deposit schemes, but will be ending in March 2023. This lets first time buyers borrow 20% (40% in London) of the purchase price, interest free, with a deposit of at least 5%.
The government also launched a mortgage guarantee scheme in April that will run until the end of 2022. This encourages lenders to offer 95% loan to value mortgages for properties up to £600,000, and is available to existing homeowners as well as first time buyers.
In addition to these state-backed schemes, there is the new initiative, Deposit Unlock, which can be used without the need for government help.
I’ve never heard of Deposit Unlock; how does it work?
Deposit Unlock enables first-time buyers and second steppers to buy a new-build property worth up to £750,000, with a deposit of 5%. It was developed by the Home Builders Federation (the HBF, which represents housing developers), its members and reinsurance broker Gallagher Re.
The idea behind it is to make new-build properties more attractive to lenders. It does this by making housebuilders, rather than lenders, pay the cost of insuring the mortgage through a percentage of income made from their house sales.
What homes are eligible?
At the moment, Deposit Unlock is only available via a small number of housebuilders and lenders, but there are plans to roll it out more widely.
One catch is that buyers can only purchase a home from a builder who is signed up. The HBF says 17 of its members will be taking part but a full list has yet to be announced.
Nationwide is the first major lender to sign up to the scheme, offering mortgages up to 95% on new-build properties worth up to £750,000. In June, Barratt Developments, Bellway, Keepmoat and Vistry also took part in a pilot in the North East with Newcastle Building Society.
What are the interest rates and other terms I should be aware of?
Rates will vary depending on the lender, but Nationwide’s rates start from 2.89% on loans between £25,000 and £750,000.
They have fixed-rate products available at two, three and five years, with a maximum term of 40 years and maximum age of 75. The lender also says first-time buyers could receive a £500 cashback incentive, with an additional “green reward” of up to £500 given to those purchasing the most energy efficient properties.
If you are looking for mortgage advice to buy your first home or your next home with a 5% deposit, get in touch with one of our expert brokers at Knight Frank Finance to discuss your options.