Nationwide Building Society became the first major lender to back Deposit Unlock this week, opening up its range of 95 per cent loan to value (LTV) mortgages to buyers using the scheme.
Deposit Unlock is a mortgage indemnity scheme, launched through a tie-up between the Home Builders Federation and insurance broker Gallagher Re, and is aimed at supporting borrowers with only a five per cent deposit who are looking to purchase a new-build property, whether they are first-time buyers or existing property owners.
The scheme is available on more than 1,000 new build sites across the country, with Nationwide’s participation following the likes of Newcastle Building Society.
Saving a sufficient deposit has become an ever more pressing issue for those hoping to buy a home over the last year, off the back of rocketing house prices.
A report from Intermediary Mortgage Lenders Association (IMLA) at the start of the summer found that first-time buyer numbers dropped to a three-year low as they were outbid by more deposit-rich rivals, while a survey from Ipswich Building Society has found that almost two-thirds of would-be first-time buyers have turned to side hustles to help them save enough money for a deposit.
We need a Help to Buy alternative
Pete Mugleston, managing director of Online Mortgage Adviser, praised the Deposit Unlock scheme for opening up more options for would-be homebuyers who are struggling to get together a sufficient deposit.
He continued: “It’s been a seller’s market for a good while now, so extra support for first-time buyers and those with small deposits was high on the list of things the industry has been crying out for. Moreover, a long-term alternative to Help to Buy is much needed and it gives us confidence that this demographic won’t be left out in the cold when Help to Buy ends.”
The Help to Buy Equity Loan scheme, which already helps buyers with only a five per cent deposit, is due to end in March next year. It remains popular with potential buyers, with purchases in the first quarter of this year up significantly on recent years according to government figures.
Not all FTBs have parental help
Rhys Schofield, managing director at Peak Mortgages and Protection, said that it was vital to give first-time buyers help in purchasing with a “realistic deposit” as “prospective first-time buyers don’t all have healthy accounts at the Bank of Mum and Dad”.
He added: “Look at how many first-time buyers now own houses because of the Help to Buy Equity Loan that otherwise would be stuck in rented accommodation, paying more and more each month to pay off their landlord’s mortgage.”
Schofield said that innovations like the Deposit Unlock scheme were what the industry as a whole wanted to see more of.
He added: “We need more joined up thinking, coming up with solutions to help people we all know can afford the mortgage repayments, but are limited on the deposit they can save while paying ever more money each month in rent.”
Stuart Gregory, managing director at Lentune Mortgage Consultancy, agreed that any development aimed at supporting buyers should be welcomed.
He continued: “As with all schemes that are launched, they will suit some borrowers more than others, but we need to see continued development in this area to ensure we have a healthy functioning mortgage market.”
This was echoed by Martin Stewart, director of London Money, who said: “Any form of collaboration that sees various parts of the sector come together for the benefit of the client has to be applauded.”
Mugleston added that Nationwide’s involvement was important, as it added some kudos and credibility to the Deposit Unlock scheme.
He suggested that having a big, recognisable name attached to Deposit Unlock would build trust in it, particularly for first-time buyers for whom the entire property buying process is something of a mystery.
He continued: “It’s very encouraging that innovative steps to help new buyers and people who’d otherwise struggle to save up a deposit are being embraced by the mainstream.”
Mark Harris, chief executive of SPF Private Clients, agreed that Nationwide’s involvement meant the scheme enjoyed a higher profile. He added: “It also has the ability to potentially process volume and reach more people so participation should increase accordingly.”
A question of competition
Gregory pointed out that Nationwide’s backing of the scheme was important for another reason ‒ encouraging the entry of rival lenders to Deposit Unlock.
He explained that ultimately the scheme’s success or failure would be driven by the number of lenders who agree to utilise Deposit Unlock, adding: “Perhaps this will increase off the back of Nationwide’s entry into the use of the scheme.”
Stewart agreed, stating that Nationwide was “on the front foot in supporting the scheme”, adding that “it sometimes takes the major players to get involved as it encourages others to do the same”.