Virgin Money and Halifax will be offering mortgages with rates potentially below 1% from Monday under a new scheme open to buyers of new build homes.
The Own New Rate Reducer is aimed at making homeownership more affordable and accessible by providing low rate mortgages for those making their first or next home move.
The business behind the mortgage is called Own New and it has joined forces with housebuilder Barratt Developments to launch the scheme on Monday 26 February.
More housebuilders are due to join the scheme from 4 March. Likewise, whilst Virgin Money and Halifax are set to offer the mortgages for the scheme, lenders Gen H, Furness Building Society and Perenna have also confirmed they will also soon be providing mortgages through Own New too.
Some buyers, with high deposit or equity, could achieve rates below 1% – but how does it work?
The Own New Rate Reducer uses incentive budgets, offered by housebuilders 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. Buyers can opt to spread the benefit across the first two or five years, depending on their lender’s criteria.
Virgin Money said with the incentive budget being invested in the mortgage upfront, for a new home worth £300,000 its introductory two-year mortgage rate of 4.79% with a £999 fee for someone who needed to borrow 65% of their property’s price (65% loan-to-value – LTV) , the rate could be cut to 0.99% at 60% LTV with a £495 fee.
By cutting the monthly outgoings initially, the customer is able to pay more off the capital value of their mortgage because the interest charged on the loan is lower.
Applicants will still be subject to the usual affordability assessment, to check they can afford repayments if the interest rate increases once the fixed-term benefit ends.
In addition they will be required to seek independent financial advice from a regulated mortgage broker who has completed additional training to access this scheme.
Eliot Darcy
Eliot Darcy, founder of Own New, said: “People can benefit from Rate Reducer whether they have a small or large deposit. For some people who already have equity in their home, it could herald the return of the sub-one per cent mortgage deal.”
He added: “This is just the product to stimulate the housing market and to give more people a helping hand and initial boost to get onto the property ladder or to secure that new home that will give them the extra space they need.”
Amanda Bryden, head of Halifax Intermediaries, said: “This product gives customers more choice in the way they can benefit from builder incentives and is especially helpful to those who want to see a lower initial mortgage payment as they get set up in their new home.”
Barratt Developments worked alongside Own New to design Rate Reducer and will be the first housebuilder to launch the scheme. Other developers who have supported and are signed up to take part include Persimmon, Taylor Wimpey, Bellway and Berkeley Homes.
Own New was launched in 2022 and its Deposit Drop product has been helping buyers in the North East and Yorkshire to buy a new home with a 5% deposit since early 2023.
David Hollingworth, associate director at L&C Mortgages offered his thoughts on the new scheme.
“Buyers will no doubt have paused their plans due to higher mortgage rates pushing up their monthly payments. This product looks to address those concerns by using the developer’s incentive to slash the rate on the mortgage.
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. In the meantime, they will feel they have more flex to enable them to buy sooner.
“We’ve seen other schemes that can help buyers with small deposits but this new, innovative approach puts another option on the table for buyers.”
To access Own New Rate Reducer, customers will need to speak to one of the housebuilders taking part to find a home that is available through the scheme. They will then be referred to one of a network of specialist mortgage broker partners, who will help to progress their application.
Eliot Darcy, who founded Own New, set out to create a more accessible system of mortgage lending after being frustrated when he bought his first home.
Despite having a stable income, he struggled to secure a mortgage, while friends with wealthy parents enjoyed a much more straightforward route to buying.
Own New works closely with each lender, with a target – to give customers the full benefit of the developer contribution by reducing their interest payments by at least the same value as the incentive.
For more information on the Own New Rate Reducer visit OwnNew.co.uk
