New starter scheme with mortgage interest rate UNDER 1%
A NEW starter scheme offers mortgages with an interest rate below 1%.
The Own New’s Rate Reducer mortgage offers buyers of new construction a reduction in mortgage interest when they purchase a home from several major home builders.
These include Barratt Homes, Barratt London, David Wilson Homes, Persimmon, Taylor Wimpey, Bellway and Berkeley Homes
The scheme, which started in February 2024, gives home buyers access to a very low mortgage interest rate during the initial term of their mortgage.
Own New Rate Reducer works by using incentive budgets that home builders offer to their customers to reduce their monthly mortgage payments over a fixed term.
For example, if the homebuilder offers a 5% incentive on a home, Own New Rate Reducer takes this amount and applies it directly to the mortgage interest to reduce monthly payments.
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 join Own New’s Rate Reducer, says that for a new home worth £300,000 the introductory 2 year mortgage rate of 4.79% with a £995 fee at an LTV will be 65%. reduced to 0.99% at 60% LTV with a £495 fee.
But remember: to get this rate, you need a 40% deposit.
Halifax, Lenders Gen H, Furness Building Society and Perenna also offer discounted introductory mortgages through the scheme.
In addition to saving on monthly costs during that period, the customer also pays more on the capital value of his mortgage, because the interest charged on the loan is lower.
Lenders will still carry out their usual affordability assessment to check whether the buyer can afford repayments if interest rates rise once the fixed term benefit expires.
To access this scheme, independent financial advice must be obtained from a regulated mortgage broker who has completed additional training.
Commenting on its own new Rate Reducer product, David Hollingworth, Associate Director at L&C Mortgages, said: “Buyers will no doubt have put their plans on hold due to higher mortgage rates, which has pushed up their monthly payments.
“This product aims to address these concerns by taking advantage of the developer’s incentive to lower mortgage rates.
This will help address one of the key barriers for many and give buyers more breathing room on their monthly payments.
‘Borrowers will need to meet lenders’ affordability tests as normal, but it will also be important for them to plan ahead.
“Once the deal ends, it’s likely that rates will still be higher and payments will increase.
However, buyers will know this along the way and can therefore work to make provisions for an increase in payments in the future.”
How does the scheme work in practice?
With the Own New Rate Reduced scheme, you buy a new-build home with a mortgage and pay a lower mortgage interest than when you buy on the open market with a traditional mortgage.
When you choose your property, the developer agrees to contribute 3% or 5% of the purchase price.
The mortgage lender will then offset the 3% or 5% developer contribution against the mortgage interest to reduce your monthly payments for the first two or five years, depending on the length of your initial term.
Barratts Homes says mortgage rates below 1.89% will be available through the Own New Rate Reducer program in spring 2024, assuming a 5% incentive for housebuilders, with an initial period of two years and an LTV of 75%.
For comparison, on the open market in spring 2024 the best two-year fix at an LTV of 75% is 4.42%.
So if you take out a $180,000 mortgage over 25 years at 1.89% through the Rate Reducer program, your mortgage payments for the first two years will be $754 per month.
This is €238 per month less than if you took out the best two-year fixed rate with an interest rate of 4.42%, leaving you with an annual saving of €2,856.
Who is eligible and how do I apply?
The scheme is open to those who buy a new-build home and who:
- Are a first time buyer
- Are a house mover
- Have owned real estate in the past
To purchase a home through the Own New scheme, visit www.ownnew.co.uk.
Here you can find an eligible property from a developer who has signed up for the scheme.
You should then discuss your mortgage options with a recognized Eigen Nieuw mortgage broker, such as our partner free mortgage broker L&C.
Once you have agreed, you will continue with the purchasing process of the new construction as normal.
What are the advantages and disadvantages of the scheme?
The main advantage of this mortgage arrangement is that it results in significantly lower monthly mortgage costs for a fixed period.
As a knock-on effect of paying lower rates, the homeowner will also pay off more of their property’s capital.
But once your introductory period ends, you should be prepared for mortgage rates to rise.
You also get a more limited choice of properties eligible for the scheme, and you may not get the nominal 0.99% rate if you can’t afford a 40% deposit.
Other starter schemes where you need a small or no down payment
Several major banks and building societies allow first-time buyers to borrow the full amount needed to purchase their home.
These deals are often called 100% loan-to-value mortgages because you don’t need a down payment to purchase.
Last year Skipton Building Society launched its Track Record 100% mortgage available to tenants buying their first ever property.
The only catch is that the amount you can borrow has a limit, because your monthly repayment cannot be more than what you currently pay in rent.
Real estate developer Fairview recently launched its Save to Buy program.
This allows starters to save for their final deposit after their move.
Buyers pay a fixed amount monthly into a Fairview piggy bank 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.
Thanks to the Right to Buy scheme, tenants of social housing can buy the home they rent with a discount of up to 70%.
You get a 35% discount on your social housing if you have been a tenant in the public sector for three to five years.
The right to purchase is similar to the right to purchase, but offers people who rent from a housing association or another public sector landlord the opportunity to buy their home.
It is open to anyone renting in the public sector for three years or more and offers a discount of £9,000 to £16,000 on the purchase price.
How much you get depends on the location of the home.