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Reinsurance-backed Deposit Unlock set for soft launch offering high LTVs on new builds

  • 26/05/2021
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Reinsurance-backed Deposit Unlock set for soft launch offering high LTVs on new builds
A new reinsurance-backed mortgage scheme is to soft launch next month supporting high loan to value (LTV) lending in the new build market.


Deposit Unlock will be offered by a local lender in one region of the UK initially, with the aim to expand to multiple lenders and roll out nationally.

The scheme will see house-builders pay the cost of insuring mortgages through a percentage of income from house sales.

This means that lenders will effectively only underwrite up to 60 per cent LTV.

Terry Higgins, group managing director at the New Homes Group, part of Connells, said: “The lender still lends 95 per cent, but instead of the lender having to take out the insurance, the house-builder pays for the insurance.

“Because the house-builder is paying, these should end up being very competitive rates. 

“It’s fantastic. It gives some long-term security, not just for today, but for the end of Help to Buy in 2023 and beyond.

The details of the initial lender, region and products are expected to be announced in the next two weeks.

The scheme will not be available to brokers immediately, but distribution is expected to broaden as more lenders come on board over the summer and into 2022.


Long-term solution

House-builders began discussions about the new scheme after the Chancellor announced in the 2018 budget that Help to Buy would draw to a close in March 2023. 

It will be administered by reinsurance broker Gallagher Re, which acted as a consultant initially and will now manage the reinsurance solution.

Steve Rance, managing partner, mortgages, at Gallagher Re, said: “Every lender will have a policy that guarantees payment, and the house-builders pay, as part of their cost of doing business.

“With each sale, the house-builder passes across a small percentage of the money.

“Half of that goes to the first loss layer, held in cash, which would offer protection beyond the everyday, expected losses.

“If the cash is exhausted, a reinsurance policy kicks in – the catastrophic loss layer. The second half of house-builders cash pays for the running of the scheme and the reinsurance premium.

Rance added: “Brokers play a really important role in linking house-builders, purchasers and lenders. It’s important for us to be able to follow that chain so that we have accurate data to ensure that homes sold under this scheme are appropriately funded.”

The solution will cover loans for seven years.


Missing piece

Higgins said: “It’s what’s missing from the new build industry at the moment, with the reduction in criteria of Help to Buy — regional price caps and first-time buyers only.

“Most of the high street lenders are still at 85 per cent in new build.

“We do get some lenders come in at 90 per cent, but certainly nothing at 95 per cent. The market does need it and needs a long-term solution. Not just lenders coming in for a few weeks or months, and then back out again.”

Rance added that he hoped a range of lenders including building societies would join in.

“There is no barrier and no cost from a lender perspective, other than due diligence on the policy. It’s not a paid-for solution from their point of view, reducing the risk to an effective 60 per cent LTV.

“There’s a chance for local building societies to work with local house-builders and help people to get into homes,” he added.

The forerunner of Deposit Unlock was the New Buy scheme, which was launched by government a decade ago.

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