Own New is to launch a mortgage product which it claims will bring lower rates for new home purchases and that for some buyers with a high deposit or equity, rates below 1% will be available.
Own New Rate Reducer will launch with Halifax, Virgin Money and Barratt Developments on Monday 26 February. Other housebuilders across the country will join from Monday 4 March.
Lenders Gen H, Furness Building Society and Perenna have also confirmed they will soon be offering mortgages through the scheme.
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. Buyers can opt to spread the benefit across the first two or five years, depending on their lender’s criteria.
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. Also, independent financial advice must be sought from a regulated mortgage broker who has completed additional training to access this scheme.
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.
Eliot Darcy, founder of Own New, said: “Our ethos is to make home ownership and mortgage lending in this country open to more people and we are confident that the launch of the Own New Rate Reducer will achieve that.
“Alongside the national lenders and housebuilders who have signed up to the scheme, we believe that Rate Reducer will be a significant boost to many people’s home-buying dreams. 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.
“We are delighted to be joined by Halifax and Virgin Money for the launch. By working together, we are increasing mortgage lending opportunities and bringing the possibility of owning a new-build home to wider range of buyers.
“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.”
Craig Calder, head of secured lending at Virgin Money, added: “We’re delighted to be a founding lender of the innovative Own New Rate Reducer, making it easier and more accessible for customers to afford a new-build home.
“Buying a home is a major life event and this first-of-its-kind mortgage product will help customers feel happier about their big purchase, knowing that they have the certainty of a lower fixed interest rate over the initial period of the mortgage. By using the homebuilder incentive budget to offset initial mortgage repayments, buyers can focus on other costs like furnishings and decoration, to make their house a home.
“At Virgin Money we’re continually looking at new and inventive ways in which we can assist borrowers, with Rate Reducer following hot on the heels of our recent Fix and Switch product, which also provides certainty and flexibility.”
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 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.”