Property finance company 'Own New' launched its Rate Reducer Scheme in February 2024, a scheme which could cut a new-build buyer's mortgage down to just 0.99%. The scheme is supported by lending offered through Halifax and Virgin Money and allows buyers to purchase a new-build property initially through Barratt Developments, with other lenders and property developers poised to join the scheme.
Although purchase incentives are not uncommon in the new-build property sales market, the Rate Reducer Scheme presents a new structure of help for those looking to overcome the hurdle of rising monthly mortgage payments. In this article, we explain The Rate Reducer Scheme, how it works and whether it is worth it.
What is The Rate Reducer Scheme?
The Rate Reducer Scheme ultimately works by passing a financial incentive directly to a buyer's lender so that it can be used to offset the amount of interest charged on the mortgage loan. In turn, the homebuyer benefits from lower monthly mortgage repayments, with the mortgage period being set at either two or five years.
Property developers are known to offer an array of incentives that range from help with deposits, stamp duty or even the cost of furnishing a new home. The Rate Reducer Scheme provides a different way to encourage homebuyers who are particularly concerned about high mortgage payments.
How does the Rate Reducer Scheme work?
Homebuyers looking to take advantage of The Rate Reducer Scheme will first need to source a property through a participating property developer. At present, the only properties signed up to the scheme are available through Barratt Homes. Once the purchase price of the property is agreed, buyers will need to source a mortgage which has to be arranged through a listed mortgage adviser* who is authorised to provide specialist mortgage advice on the scheme.
The headline interest rate of 0.99% can be achieved by homebuyers who have at least a 40% deposit towards the purchase of their new home. Lower deposit amounts will in turn achieve a smaller discount on the overall interest rate.
How the Rate Reducer Scheme works over a 2-year mortgage deal
Below we show the cost of a £210,000 mortgage loan over 25 years based on a new-build property purchase of £350,000 with a 40% deposit. We compare the interest charged, the monthly mortgage repayment and the amount of capital paid off over 2 years.
| Mortgage deal with The Rate Reducer Scheme | Mortgage deal without The Rate Reducer Scheme | |
| Property purchase price | £350,000 | £350,000 |
| Deposit amount | £140,000 | £140,000 |
| Mortgage loan amount | £210,000 | £210,000 |
| Mortgage term | 25 years | 25 years |
| Interest rate | 0.99% | 4.46%¹ |
| Monthly mortgage payment | £790.48 | £1,162.49 |
| Capital repaid over 2 years | £14,954.96 | £9,570.39 |
¹rate based on the best interest rate available for a 60% LTV mortgage with a 2-year fixed rate
It is clear that the Rate Reducer Scheme significantly lowers the monthly mortgage repayment, with a £372.01 monthly saving based on the example above. However, homebuyers with smaller deposits will receive a more modest discount on their interest rate and so their mortgage repayments will be significantly higher. Likewise, the example shows that you could repay an extra £5,384.57 of your mortgage loan over the 2-year period but again this is based on a fairly high deposit amount of £140,000 so the amount of difference may not be as significant if you have a lower deposit amount to work with.
You can search for the best mortgage rates using our mortgage rate comparison tool which allows you to find mortgage deals based on your property purchase price and deposit amount.
Which lenders offer the Rate Reducer Scheme?
Halifax and Virgin Money are currently signed up to the Rate Reducer Scheme offering discounts on 2 and 5-year mortgage deals. Other lenders, including Furness Building Society, Gen H and Perenna are poised to start offering the scheme alongside similar mortgage deals over the coming weeks and months.
Is Own New's Rate Reducer Scheme worth it?
Despite the obvious advantage of lowering your monthly mortgage payment and increasing the amount of capital repaid over the period that the Rate Reducer is applied, borrowers need to be wary that the discount is only for a short period of time. Although the lender will complete affordability checks based on the likely monthly repayment when the scheme ends, there is the risk of struggling to adjust to higher rates when it comes to remortgaging.
Some suggest that homebuyers may end up overlooking the need to negotiate a good purchase price, focusing instead on the temporary low mortgage repayments on offer. Additionally, new-build properties often carry a greater risk of falling in value in the early years of ownership, which could affect the rate you can secure when it comes to remortgaging.
Like any financial incentive, you should consider the benefits of the Rate Reducer Scheme alongside other options based on your personal circumstances. Speak to a mortgage broker who will assess your circumstances and present suitable mortgage options for you to consider before you make your decision. Tembo Money* is one of the regulated mortgage brokers listed by Own New and authorised to provide advice for borrowers considering the Rate Reducer Scheme and it specialises in many other homebuyer schemes and mortgage solutions.
Pros and cons of The Rate Reducer Scheme
Pros
- Reduced mortgage repayments for 2 or 5 years
- Allows you to repay a larger amount of capital over the deal period
- A lower LTV when the deal ends may attract better rates when remortgaging
Cons
- Mortgage repayments could increase significantly at the end of the deal period
- Borrowers are required to meet affordability criteria based on when the scheme ends
- Limited number of developers and lenders from the outset, although this is likely to improve over time
Alternatives to The Rate Reducer Scheme
Below we describe some alternative ways to get some help to buy a new-build property that you should explore alongside the Rate Reducer Scheme. The schemes can be difficult to understand and you may even wish to consider more than one scheme to help you secure your property purchase. Tembo* is a specialist mortgage broker that expertly combines many schemes and options to boost your chances of homebuying success. Helpfully, it is also authorised to arrange your mortgage if you choose to use Own New's Rate Reducer Scheme but will ensure that you are guided to the best options based on your circumstances and financial means. Tembo's average customer increases the amount they can borrow by £82,000. Your initial conversation with a Tembo broker won't cost you anything but a fee is payable upon completion of your mortgage.
Own New's Deposit Drop Scheme
This scheme allows new-build homebuyers to achieve mortgage success with a deposit of as little as 5% of the property price. This is usually difficult as mortgage lenders normally look for higher deposits on new-build properties due to depreciating property values in the early years of ownership. As with the Rate Reducer Scheme, you will need to use an authorised mortgage broker* to access this scheme.
Developer's Deposit Incentive
Property developers can offer financial incentives towards the purchase of your home which could help to reduce the cost of your mortgage payments by lowering the mortgage value needed to complete your purchase. These types of incentives are usually part of a negotiation process undertaken directly with the property developer or through the estate agent. Not all incentives will be advertised so it is worthwhile asking the question if you are in negotiations to buy a new-build property. You can also negotiate financial assistance to help you pay for some of the other costs you will incur during your house purchase including stamp duty, moving, furnishing and legal costs.
First Homes Scheme
The First Homes Scheme can provide first-time buyers with a 30-50% discount on their property's purchase price. You can qualify for the scheme as long as your joint or individual income is less than £80,000 annually (£90,000 if buying in London) and you are able to get a mortgage for at least 50% of the property purchase price. The scheme limits you to new-build properties or properties that were previously bought using the scheme which must be your only or main residence. In some areas, the scheme may prioritise homebuyers who are key workers, armed forces workers (or family of armed forces workers), people who already live in the area or those on lower incomes.
Shared Ownership Scheme
If owning part of your home is acceptable to you then you could also consider buying a property through a shared ownership scheme. These types of schemes are usually available through local organisations and allow homebuyers to purchase a share in a property while agreeing to pay rent to the scheme owner for their share of the property. Shared ownership can reduce the cost of owning the type of property that you need and gradually, you may be able to buy further shares of your property as and when you can afford to do so.
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