What is Own New Rate Reducer?

Own New Rate Reducer could make mortgages for new build homes more affordable: how it works

Buyers of new build homes could benefit from lower mortgage rates, thanks to a new scheme designed to give homeowners more power over their monthly outgoings.

The Own New Rate Reducer scheme offers new build customers reduced fixed mortgage rates over two or five years, with lenders able to provide these lower rates by using completion incentives offered by the housebuilder.

Here’s what you need to know.

How does Own New Rate Reducer work?

Homebuilders typically offer customers developer incentives to buy, such as covering the cost of Stamp Duty or a contribution towards your deposit. Under the Rate Reducer scheme, these incentives are instead used to reduce the buyer’s rate on their mortgage, making their monthly payments more affordable. Many buyers may have put their purchase plans on hold in recent months given steeper mortgage rates, so it’s hoped the scheme will help buyers overcome some of the affordability challenges they might be facing.

For example, if you’re buying a new build home from a developer who is offering a 5% incentive on the property, Own New Rate Reducer can take this amount and directly offset it against the mortgage interest to reduce your monthly payments.

Depending on the product options available from participating mortgage lenders, you can choose to spread the benefit across the first two or five years of your mortgage term.

Borrowers will have to meet lender affordability tests as normal, but this could help those for whom higher rates are a key barrier. Using the incentive to reduce the mortgage rate could help to give buyers more breathing space in their monthly payments in the early years of ownership, but it’s worth bearing in mind that after the initial period borrowers will switch onto a standard mortgage rate so could see a big jump in their payments.

Which lenders and developers are participating in Own New Rate Reducer?

Halifax and Virgin Money are the first two lenders to join the scheme, with lenders Gen H, Furness Building Society and Perenna having confirmed they will also offer mortgages through the scheme.

Barratt Developments worked alongside Own New to design Rate Reducer and is the first housebuilder to launch the scheme. However, around 60 other developers have also signed up to take part including Persimmon, Taylor Wimpey, Bellway and Berkeley Homes.

How do I buy a home using the Own New Rate Reducer scheme?

If you’re interested in buying a new build home via the Own New Rate Reducer scheme, once you’ve found a property from a participating developer, you’ll need to seek advice from a mortgage broker who has completed additional training to access this scheme.

They will help you find the best mortgage deal to suit your needs from one of the lenders participating in the scheme. Bear in mind that you’ll be subject to the usual affordability assessment that borrowers must undergo when applying for a mortgage, to check that you’ll be able to afford repayments if the interest rate increases once the fixed-term benefit ends.

How much could I save?

The Rate Reducer is offering deals with rates substantially below the current mortgage deals in the open market. That could see monthly payments reduced by hundreds of pounds per month.

The other benefit of a lower interest rate deal is that the mortgage balance will reduce more quickly than for a similar deal with a higher interest rate, adding to the overall savings.

What happens at the end of the Rate Reducer deal?

The cash incentive reduces the rate for the duration of the mortgage deal that you select. As the end of that deal approaches it makes sense to shop around as normal to get the best option for you at that time from across the market.

That will involve a switch to a standard deal from the market and won’t be at a reduced rate any longer. So, you may want to plan ahead so that you are prepared for an increase in your monthly payments if interest rates remain higher at that time.