A NEW first-time buyer scheme is offering mortgages with rates under 1%.
Own New’s Rate Reducer mortgage offers buyers of new builds a mortgage rate reduction when they purchase a home from several major housebuilders.
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These include Barratt Homes, Barratt London, David Wilson Homes, Persimmon, Taylor Wimpey, Bellway and Berkeley Homes
The scheme, which launched in February 2024, allows home buyers access to rock-bottom mortgage rates during their mortgage’s initial term.
Own New Rate Reducer works by using incentive budgets which housebuilders offer to their customers to reduce their monthly mortgage payments over a fixed term.
For example, if the housebuilder offers a 5% incentive on a home, Own New Rate Reducer takes this sum and directly offsets it against the mortgage interest to reduce monthly payments.
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Depending on their lender’s criteria, buyers can choose to spread the benefit over the first two or five years.
For example, Virgin Money, one of the first lenders to sign up to Own New’s Rate Reducer, says for a new home worth £300,000, the introductory 2-year mortgage rate of 4.79% with a £995 fee at 65% LTV will be cut to 0.99% at 60% LTV with a £495 fee.
But remember, to get this rate, you’ll need a 40% deposit.
Halifax, Lenders Gen H, Furness Building Society and Perenna also offer discounted introductory mortgages through the scheme.
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In addition to cutting monthly outgoings during that time, the customer will pay more off the capital value of their mortgage because the interest charged on the loan is lower.
Lenders will still carry out their usual affordability assessment, to check that the purchaser can afford repayments if the interest rate increases once the fixed-term benefit ends.
What is the Bank of England base rate and how does it affect me?
To access this scheme, independent financial advice must be sought from a regulated mortgage broker who has completed additional training.
Commenting on the Own New Rate Reducer product David Hollingworth, Associate Director at L&C Mortgages said: “Buyers will no doubt have paused their plans due to higher mortgage rates pushing up their monthly payments.
“This product aims to address those concerns by using the developer’s incentive to slash the mortgage rate.
This will help target one of the key barriers for many and give buyers more breathing space in their monthly payments.
“Borrowers will have to meet lender affordability tests as normal but it will also be important for them to plan ahead.
“Once the deal ends there is every chance that the rate environment will still be higher and so payments will climb.
However, buyers will know this on the way in and, therefore, be able to work toward making provision for an increase in payments in the future.”
How does the scheme work in practice?
The Own New Rate Reducer scheme allows you to buy a newly built home with a mortgage and pay a lower mortgage rate than if you buy on the open market with a traditional mortgage.
When you choose your property, the developer will agree to contribute 3% or 5% of the purchase price.
The mortgage provider will then take the developer’s contribution of 3% or 5% and offset it against the mortgage interest to reduce your monthly payments for the first two or five years, depending on the length of your initial term.
In Spring 2024, Barratts Homes says sub 1.89% mortgage rates are available via the Own New Rate Reducer scheme, assuming a 5% homebuilder incentive, with a 2 year initial period and an LTV of 75%.
By comparison, on the open market, in Spring 2024 the best two year fix at 75% LTV is 4.42%.
So if you take out a £180,000 mortgage over 25 years at 1.89% via the Rate Reducer scheme, your mortgage payments for the first two years would be £754 a month.
This is £238 a month less than if you were to take out the best two-year fixed rate charging 4.42% interest – leaving you with £2,856 annual savings.
Who is eligible and how do I apply?
The scheme is open to those buying a new build property who:
- Are a first-time buyer
- Are a home mover
- Have owned property in the past
If you want to buy a property through the Own New scheme you’ll need to visit www.ownnew.co.uk.
Here you’ll be able to find an eligible property from a developer signed up to the scheme.
You’ll then need to to discuss your mortgage options with an approved Own New mortgage broker, such as our partner fee-free mortgage brokers L&C.
After this is all agreed upon, you’ll continue the new build buying process normally.
What are the pros and cons of the scheme?
The number one perk of this mortgage scheme is that it brings substantially lower monthly mortgage payments over a fixed period of time.
As a knock-on effect of paying lower rates, the homeowner will also pay off more of their property’s capital.
However, as soon as your introductory period ends, you’ll need to be prepared for mortgage rates to shoot.
You’ll also get a more limited choice of properties eligible for the scheme, and you might not get the headline rate of 0.99% if you can’t afford a 40% deposit.
Other first-time buyer schemes where you need a small, or zero deposit
Several big banks and building societies allow first-time buyers to borrow the full amount it costs to buy their home.
These deals are often referred to as 100% loan-to-value mortgages – because you don’t need any deposit to buy.
Last year, Skipton Building Society launched its Track Record 100% mortgage available to renters who were buying their first ever property.
The only catch is that the amount you can borrow is capped as your monthly repayment cannot be more than you currently pay in rent.
Property developer Fairview recently launched its Save to Buy scheme.
This allows first-time buyers to save for their final deposit after moving into their new home.
Buyers pay a fixed monthly sum into a savings pot held by Fairview instead of rent.
You only need a 1% deposit to get started and when you’ve built up enough equity you can apply for a mortgage to buy your home.
The Right to Buy scheme lets council house tenants buy the property they rent at a discount of up to 70%.
You get a 35% discount on your council home if you’ve been a public sector tenant for between three to five years.
The Right to Acquire is similar to Right to Buy but allows people renting from a housing association or other public sector landlord to buy their home.
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It’s open to anyone renting in the public sector for three years or longer and offers a discount between £9,000 and £16,000 on the purchase price.
How much you get off will depend on the location of the property.
