Since the Bank of England raised interest rates to 2.25% from 1.75% on 22 September, stating it would continue to “respond forcefully, as necessary” to inflation – and the former chancellor of the exchequer Kwasi Kwarteng delivered his now infamous mini-budget the following day – we have witnessed turmoil in the financial markets, a fall in the value of sterling and rises in the cost of UK government borrowing and mortgage rates.

Almost immediately, the subsequent movement in mortgage interest rates and adverse effect on product availability began to dominate the headlines – not surprising given the widespread impact rising rates will have on the cost of repayments and access to borrowing across the UK, during an already in play cost of living crisis.

Roll forward a week and providers had withdrawn 1,688 mortgage products, leaving would-be borrowers in limbo and raising fears of a collapse in house prices. The UK’s largest mortgage provider – Lloyds Banking Group – withdrew a range of products, while Virgin Money, a top 10 provider, and Skipton Building Society, both informed brokers they would stop offering new home loans.

Put together, that near 1,700 mortgage products withdrawn over the course of a mere seven days equated to around 40% of available products, exasperating the rush for customers to remortgage to the reduced numbers of remaining mortgage offerings.

But one key product from another major lender was notably not pulled from the market: Nationwide’s Deposit Unlock mortgage; the mortgage supported by the house-builder led scheme that, when it launched last year, enabled 95% mortgages for new build properties to become a reality once more.

The fact this high LTV product from a major lender remained available throughout the turmoil of the last four weeks, is important for two reasons.

First, Deposit Unlock is demonstrating its credentials as a viable long-term solution to enable 95% new build lending in all market conditions. Designed, as it was, to be ‘cycle-proof’, Deposit Unlock is already proving resilient to short-term market swings and, crucially, offering customers a consistent product.

The solution was devised for and funded by the house building industry to gives lenders deep indemnity protection – more than twice that of the government’s mortgage guarantee scheme.

Deposit Unlock effectively enables lenders to enter the new build space with 95% LTV mortgages on both flats and houses with a free mortgage indemnity policy, protecting them to 60% LTV. In turn, this provides some much needed sales certainty for house builders investing in development sites and building new homes. Plus, lenders such as Nationwide can also have the confidence to keep offering those products during times of economic turbulence.

Second, as we enter the second half of the very last month for Help to Buy applications with the government’s shared equity scheme ending, the robustness and resilience we have witnessed is evidence that this house builder-owned, private-sector solution at zero cost to the taxpayer really does have the legs to be a long-term solution for high LTV, new build lending from 2023.

Scheme stress test: from scenario to reality

Developed over a two-year period, and live for just over a year (having launched with the Newcastle Building Society in June 2021), Deposit Unlock is a great and effective example of cross-industry collaboration for the greater good.

Every key home-buying stakeholder provided input, expertise and guidance from the house builders, mortgage lenders and insurance industry architects to mortgage advisers and, of course, homebuyers.

Central to everyone’s requirements was the need for Deposit Unlock to be robust enough to weather every cycle of the UK economy.

The turmoil of the past four weeks has therefore brought its first real stress test.  It has seen the scheme prove itself to be stronger than comparable 95% mortgages, a worthy successor to both Help to Buy and the government’s mortgage guarantee scheme, and here for the long term.

As the amount of products begins to increase once more and lenders return to market – such as Generation Home’s reintroduction of products at up to 95% LTV on 12 October – the stability and resilience of Deposit Unlock deserves highlighting.

Given the rapidly approaching 31 October deadline for Help to Buy applications, house builders, lenders and home buyers can take comfort from the fact a solution already exists to nullify the knock-on effects of sudden market movements, turmoil and even recession.

Freddie Scarratt is director, mortgage solutions, at Gallagher Re