New sub-1% mortgage launched

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Last week, the housing platform Own New launched a new ‘Rate Reducer’ mortgage scheme, which offers an initial sub 1% mortgage rate to buyers of new-build homes.

At a time when mortgage rates are considerably higher than they were two years ago, this new mortgage looks highly attractive. But is it as good as it seems? Read on to discover how the scheme works and what the downsides might be.

How does the Rate Reducer scheme work?

Own New is a platform that works with house builders and lenders to give reduced rates and smaller deposit mortgages on new build homes.

When housebuilders market their new homes, they often offer incentives to tempt buyers – free stamp duty and legal fees or cashback on completion, for example. The Rate Reducer scheme uses the housebuilder’s incentive pot and offsets it against the buyer’s mortgage rate. By doing this, the homebuyer can get a cheaper mortgage rate for the first two or five years when they buy a new-build home.

Which homes will be available under the scheme?

The scheme is available on properties built by Barratt Homes with only two lenders – Halifax and Virgin Money. However, other major developers, including Bellway, Persimmon, Taylor Wimpey and Berkeley, will join soon. Lenders Gen H, Furness Building Society and Perenna have confirmed they will provide mortgages through Own New.

Who can get a sub-1% mortgage?

To access the Rate Reducer mortgage, customers must buy a home from one of the housebuilders in the scheme.

Applicants will be subject to the usual affordability assessment, including stress checks to determine whether they can afford repayments if the interest rate increases once the fixed-term benefit ends. Also, applicants must seek independent financial advice from a regulated and specially trained mortgage broker.

The available rate will depend on several factors, including the housebuilder’s incentive pot size, the home’s value, the lender, the deposit amount and the overall mortgage term. 

On 26 February 2024, Virgin Money cited the following example: For a new home worth £300,000, the introductory two-year mortgage rate of 4.79% with a £995 fee at 65% loan-to-value (LTV) will be cut to 0.99% at 60% LTV with a £495 fee.

What are the downsides?

It’s easy to look at the headline rate and think this is a good deal. The potential initial rate is significantly lower than the current average mortgage rate, so that monthly mortgage repayments will be lower. However, there are downsides, including:

  • You won’t benefit from other incentives from the developer as they’ll put the cash they might have used towards incentives towards your mortgage.
  • After the initial mortgage term, your mortgage interest rate will likely increase, making your monthly repayments higher and possibly less affordable.
  • The scheme only applies to newly built homes, which are generally more expensive than existing properties.

If you’d like to know more about the Rate Reducer or other mortgage options, please get in touch.