What is Own New Rate Reducer?

The Own New Rate Reducer is an innovative scheme launched in February 2024 that aims to make homeownership more affordable for buyers of new build properties. This program, created by property finance company Own New, works by allowing homebuyers to access significantly reduced mortgage rates for the initial term of their mortgage, typically 2 to 5 years. If you’re interested in learning about How to Maximize Affordability When Buying a New-Build Home be sure to check out this article.

How the Scheme Works

The Own New Rate Reducer operates through a collaboration between property developers, lenders, and the Own New platform. Here’s a breakdown of the process:

1. Property Developer Contribution: The developer agrees to contribute 3% or 5% of the purchase price towards the buyer’s mortgage.
2. Fund Transfer: This contribution is sent to the mortgage lender via Own New, the property finance company managing the scheme.
3. Interest Offset: The contribution is offset against the mortgage interest, resulting in a lower interest rate for the buyer.
4. Reduced Monthly Payments: As a result, homebuyers benefit from reduced monthly payments for the initial fixed term of their mortgage.

Key Features and Benefits

The Own New Rate Reducer scheme offers several attractive features for potential homebuyers:

1. Significantly Reduced Rates: Mortgage rates can be as low as 1.59% for the initial term, with some cases even offering sub-1% rates.
2. Wide Eligibility: The scheme is available to both first-time buyers and existing homeowners looking to move.
3. 100% Ownership: Buyers own 100% of their property, unlike some other homebuying assistance schemes.
4. Lower Monthly Payments: The reduced interest rates translate to lower monthly mortgage payments during the initial term.
5. Increased Capital Repayment: With lower interest rates, more of the monthly payment goes towards reducing the mortgage principal, allowing buyers to build equity faster.
6. Minimal Deposit Requirement: In some cases, the scheme can be accessed with as little as a 5% deposit.

Participating Entities

The success of the Own New Rate Reducer scheme relies on the participation of various stakeholders in the property market:

1. Lenders: Several major lenders have joined the scheme, including Halifax, Virgin Money, Gen H, Furness Building Society, and Perenna.
2. Developers: Over 60 homebuilders are participating, including well-known names such as Barratt Developments, Persimmon, Taylor Wimpey, Bellway, and Berkeley Homes.
3. Mortgage Brokers: The scheme can only be accessed through approved Own New mortgage brokers.

Eligibility and Application Process

To be eligible for the Own New Rate Reducer scheme, buyers must be purchasing a new build property from a participating developer. The application process involves the following steps:

1. Find an eligible property from a participating developer.
2. Arrange a mortgage through an approved Own New broker.
3. Go through the usual new build buying process.
4. Receive a letter of acknowledgment, including a personalized illustration of how the developer’s contribution will be used.

Considerations and Potential Drawbacks

While the Own New Rate Reducer scheme offers significant benefits, there are some factors that potential buyers should consider:

1. Limited to New Builds: The scheme is only available for new build properties from participating developers, which may limit choices and potentially be more expensive than existing homes.
2. Future Rate Increases: After the initial fixed-rate period ends, mortgage rates may increase significantly, potentially leading to higher monthly payments.
3. Restricted Lender Choice: The scheme is currently available through a limited number of lenders, which may restrict options for buyers.
4. Property Depreciation: New build properties tend to depreciate in value initially, which could affect equity in the short term.

Impact on the Housing Market

The Own New Rate Reducer scheme has the potential to significantly impact the new build housing market:

1. Increased Affordability: By reducing monthly mortgage payments, the scheme makes new build homes more accessible to a wider range of buyers.
2. Stimulating New Build Sales: The attractive rates offered through the scheme could drive increased interest in new build properties.
3. Supporting First-Time Buyers: The scheme provides an additional avenue for first-time buyers to enter the property market with more affordable initial payments.
4. Encouraging Property Developers: With increased demand for new builds, developers may be incentivized to increase construction, potentially helping to address housing shortages.

Comparison to Other Schemes

The Own New Rate Reducer scheme differs from other homebuying assistance programs in several ways:

1. Full Ownership: Unlike shared ownership schemes, buyers own 100% of their property from the outset.
2. No Equity Loan: In contrast to programs like Help to Buy, there’s no equity loan involved, simplifying the ownership structure.
3. Focus on Interest Rates: Rather than providing deposit assistance, this scheme focuses on reducing ongoing mortgage costs.

Future Outlook

As a relatively new scheme, the Own New Rate Reducer has the potential for growth and evolution:

1. Expanding Participation: More lenders and developers are expected to join the scheme, providing buyers with a wider range of options.
2. Potential Adaptations: As the scheme matures, there may be adjustments to its structure or offerings based on market response and buyer needs.
3. Impact on Mortgage Market: The scheme could influence broader mortgage market trends, potentially encouraging more competitive rates for new build properties.

Conclusion

The Own New Rate Reducer scheme represents an innovative approach to making new build homes more affordable and accessible. By leveraging developer incentives to reduce mortgage rates, it offers significant benefits to buyers, particularly in the initial years of homeownership. However, as with any financial decision, potential buyers should carefully consider their long-term financial situation and seek professional advice to determine if this scheme aligns with their homeownership goals.

As the housing market continues to evolve, schemes like Own New Rate Reducer play a crucial role in addressing affordability challenges and supporting homeownership aspirations. While it’s not a one-size-fits-all solution, for many buyers, it could be the key to unlocking the door to their new home.