As the popular Help to Buy equity loan comes to an end, which has been used to purchase nearly 350,000 homes across the UK since the programme began, a new initiative has been introduced to help buyers who struggle to fork out big deposits on new build homes – and leading Coventry & Warwickshire estate agents Loveitts break down everything you need to know on what it means and its benefits.
The scheme, known as Deposit Unlock, has been devised in collaboration with the Home Builders Federation, mortgage lenders and the housebuilding industry in order encourage lenders to offer more high loan-to-value mortgages.
By doing so, this enables house hunters to purchase a new-build home with just a five per cent deposit, regardless of whether they are a first time buyer or a pre-existing homeowner moving into another property.
Rather than a government loan, the Deposit Unlock scheme is a mortgage-indemnity scheme, meaning that the builder has insurance in place in order to cover the risk taken on by the mortgage provider in the event that the homeowner defaults on the loan.
Over the years it has become more difficult to purchase a new-build property in the UK with a small deposit due to lenders being stricter on the amount they are willing to lend on the purchase of new builds.
With new-build properties more likely to devalue in their early years, the risk of negative equity often results in lenders setting the minimum deposit required for new build properties at anywhere between 15 to 25 per cent.
However, the new scheme helps buyers bypass such difficulties.
Deposit Unlock is set to fill the void left by the closure of the Help to Buy scheme – which was launched by George Osborne in 2013 to jumpstart the struggling housing market.
Set to end next year, the Help to Buy Equity Loan allows first-time buyers above the age of 18 to purchase a home with a five per cent deposit, or up to 40 per cent if the property is based in London, in order to make up 20 per cent of the total purchase price.
Last year, Nationwide said that the scheme would help provide a ‘much-needed’ alternative for those opting for a new-build home after the Help to Buy Equity Loan scheme comes to a close in March 2023.
The Deposit Unlock mortgage scheme allows buyers to purchase a home of up to £750,000, offering much greater flexibility than the Help to Buy Equity Loan, which was most recently only eligible for properties priced under £255,600 in the West Midlands.
The scheme is exclusively available with a wide range of home builders, however potential buyers are urged to double check whether their house builder of choice.
Sallyanne Wykes Area New Homes Manager at Loveitts Estate Agents commented: “With house prices becoming more and more out of reach for buyers, the Deposit Unlock scheme offers home hunters in Coventry and Warwickshire the opportunity of gaining access to high LTV (loan to value) mortgages on new-build properties.
“The need for greater access to new-build homes has never been more apparent. Potential buyers are being priced out of moving into new-builds due to being forced to save up larger deposits than those buyer older properties – not helped by lenders being reluctant to offer maximum loan-to-value mortgages on new builds.
“This scheme re-establishes the opportunity of bypassing such issues and offers extra support to either first time buyers taking their first steps onto the property ladder, or next-time buyers looking to make the move into their next home.
“With several affordable home ownership schemes to help first-time buyers and home movers currently available, we urge potential buyers to speak to a professional regarding the scheme to ensure that it is the right fit for their needs.”