Own New Rate Reducer scheme explained

The new Own New Rate Reducer scheme offers buyers access to rock bottom mortgage rates. But what’s the catch? We take a look...

Rebecca Gamble Consumer Journalist

What is the Own New Rate Reducer scheme?

The Own New Rate Reducer scheme is designed to make it easier and cheaper to buy a new build home. The scheme, which launched in February 2024, allows home buyers access to rock-bottom mortgage rates during their mortgage’s initial term.

For example, Virgin Money, one of the first lenders to sign up to Rate Reducer, says for a new home worth £300,000, the introductory 2 year mortgage rate of 4.79% with a £995 fee at 65% LTV will be cut to 0.99% at 60% LTV with a £495 fee. Read on to find out more details of how it works.

Own New also offers the Deposit Drop scheme, which lets people buy a new build home with a 5% deposit. It launched in the North East and Yorkshire in 2023, with plans to broaden out where it’s available in due course.

To buy a home through Own New you’ll need to speak to an approved mortgage broker. Speak to our partners at fee-free mortgage brokers L&C today to find out more.

Who is eligible to use the Own New Rate Reducer scheme?

The Own New Rate Reducer scheme is open to anyone buying a new build property, whether you’re a:

• first time buyer
• home mover
• or you’ve owned property in the past

How does the Own New Rate Reducer work?

The Own New Rate Reducer scheme allows you to buy a new build home with a mortgage and pay a lower mortgage rate than if you buy on the open market with a traditional mortgage.

The way the Own New scheme works is that:

• When you choose your property, the developer will agree to contribute 3% or 5% of the purchase price. House builders do this as an incentive for you to buy their properties, in much the same way they sometimes offer a discount, to upgrade fixtures and fittings or to pay your stamp duty bill.
• The developer’s contribution goes to your mortgage lender, via Own New. So you get the 3% or 5% reduction off your interest payments by at least the same value as the incentive.​
• In other words, the lender will take the developer’s contribution of 3% or 5% and offset it against the mortgage interest to reduce your monthly payments for the first 2 or 5 years, depending on the length of your initial term.

How much will I pay with the Own New scheme?

Here’s an example of how much you would pay with the Own New scheme. In Spring 2024, Barratts Homes says sub 1.89% mortgage rates are available via the Own New Rate Reducer scheme, assuming a 5% homebuilder incentive, with a 2 year initial period and an LTV of 75%. By comparison, on the open market, in Spring 2024 the best 2 year fix at 75% LTV is 4.42%.

• So if you take out a £180,000 mortgage over 25 years at 1.89% via the Rate Reducer scheme your mortgage payments for the first 2 years would be £754 a month. By comparison, if you take out a rate of 4.42%, your mortgage payments would be £992 a month during the first 2 years.

See our mortgage cost calculator to work out the cost of your mortgage or to compare mortgage deals. Bear in mind, to get the biggest discounts on a mortgage, buyers will need larger deposits.

You’ll pay off more capital with Rate Reducer

As well as paying less on your mortgage, you’ll also pay more off the capital value of your mortgage with the Rate Reducer scheme because the interest charged on the loan is lower. As a result, you would end up with more equity at the end of the fixed period.

For example, on a 25 year repayment term, the £180,000 mortgage will be £168,522 after two years at a rate of 1.89%, compared to £171,751 if charged at 4.42%.

This means you would have paid off £3,049 more on the lower rate alongside the savings made from lower interest costs.

Which mortgage lenders can I use with the Own New Rate Reducer scheme?

Own New Rate Reducer launched with Halifax and Virgin Money. However, lenders Gen H, Furness Building Society and Perenna have also confirmed they’ll soon be offering mortgages through the scheme.

To buy a home through Own New you’ll need to speak to an approved mortgage broker. Speak to our partners at fee-free mortgage brokers L&C today to find out more.

Which developers have signed up to Own New?

Barratt Developments worked alongside Own New to design Rate Reducer and was the first housebuilder to launch the scheme; Barratt Homes, Barratt London and David Wilson Homes all have information on their websites about Rate Reducer.

However, other developers who have supported and are signed up to take part include Persimmon, Taylor Wimpey, Bellway and Berkeley Homes.

How do I apply for Own New?

If you want to buy a property through the Own New scheme here’s the process:

1. Find a property: You’ll need to find an eligible new build property from a developer signed up to the scheme – read on for more on this.
2. Arrange your mortgage: Your next step is to discuss your mortgage options with an approved Own New mortgage broker, such as our partner fee-free mortgage brokers L&C.
3. You’ll continue the new build buying process in the normal way. And unlike with the shared ownership scheme, once you’ve completed, you’ll own 100% of your new home.

The process of buying a new build is slightly different to buying an older property. Find out more in our guide New build conveyancing explained and research what buying a new build involves including buying off-plan and the common pitfalls and problems in Top Tips to Buying A New Build.

Own New Rate Reducer – the expert view

David Hollingworth, Associate Director at L&C Mortgages says, “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.”

Want to find out more about Own New Rate Reducer mortgages? To talk through your options, get in touch with our fee-free mortgage brokers at L&C.

Pros and cons of the Own New scheme

If you’re considering the Own New scheme it’s important to weigh up the pros and cons.

The pros of the Own New scheme:

• Lower monthly mortgage payments: The biggest advantage of the Own New scheme is that you’ll be able to access lower mortgage rates compared to the open market.
• You’ll pay off more capital: A knock on effect of paying a lower interest rate is that you’ll pay off more capital.

Cons of the Own New scheme:

• You might not get the headline rates: Virgin Money’s example of sub 1% mortgage rates has attracted many headlines but that rate is available at 60% LTV i.e. you having a 40% deposit.
• Limited choice: You’ll have less choice of properties as you’ll need to buy from a developer that’s signed up to the Own New scheme and you may also be limited to selected plots.
• Make sure you don’t overpay for your house: The Rate Reducer scheme works by a developer offering an incentive of 3% or 5% of the property’s value which is put towards your mortgage. If you choose to take advantage of an incentive scheme it can put you on the back foot when it comes to negotiating the best price for your new build property. See our guide on How to negotiate the price of a new build home.
• Be prepared that rates could rocket: Once your initial period is over (the 2 or 5 years) you will pay standard mortgage rates. So your repayments could shoot up. If you take out a 2 year mortgage, you may feel this comes around very quickly.
• New build premium: When you buy any new build house or flat, it will depreciate in price the minute you turn the key in the door. Even in a rising property market, you may not get your money back when you buy a new build home if you have to sell within a year or two. Find out more in our guide Top tips for buying a new build house.

How does Own New Deposit Drop work?

With Own New’s Deposit Drop scheme, you can buy a new build home from a participating developer with a 5% deposit. Deposit Unlock works in a similar way as it also allows you to buy a new build house with a 5% deposit. Read more in our guide Deposit Unlock scheme explained.

But there are some differences, such as you’ll get access to different mortgage lenders. Also, while there are plans to expand the scheme, in Spring 2024 it is only available in Yorkshire and the North East. Plus, with Deposit Drop, for example, with Barratts Homes you can only buy homes worth up to £300,000. By comparison, Barratts Homes offers Deposit Unlock on selected new-build Barratt homes with a maximum mortgage of £750,000.

What are the alternatives to Own New in 2024?

Own New Rate Reducer isn’t the only scheme that can help you buy a house. Alternatives you may want to investigate include:

95% mortgages: The Mortgage Guarantee scheme, which runs until 2025, was introduced to help increase the supply of 5% deposit mortgages by supporting lenders to offer these products through a government-backed guarantee. This scheme doesn’t limit you to new build houses so you’ll have more choice of properties. However, the scheme isn’t something you specifically apply for and it’s worth noting that many lenders don’t rely on the scheme for their 95% deals. Find out more in our guide on The Mortgage Guarantee Scheme 2021-2025.

Shared Ownership. But there are pros cons to this complicated scheme, so we’d always recommend doing your research and buying on the open market if you can.

The First Homes Scheme where you may be able buy a home for 30% to 50% less than its market value when you meet certain criteria (although qualifying properties are very scarce).

While Deposit Unlock was developed by the House Builders Federation to help first time buyers and home movers buy a new build home with just a 5% deposit. Again, a 95% mortgage on the open market would be preferable to this scheme which limits you to a new build.

You may consider a 100% mortgage. In 2023 Skipton Building Society launched the 100% LTV Track Record Mortgage, designed to help first time buyers and those who haven’t owned a property in the UK in the last 3 years to take out a no deposit mortgage, provided they have a minimum 12 month proven track record of paying rent. For more details, see 100% mortgages – should I get one?

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