The little-known new-build mortgage trick that could slash your rate below 2% – here’s how

Aerial view of rows of generic new build modular terraced houses with energy efficient rooftop solar panels in the UK with characterless design for first time buyers Credit: Getty BUYERS snapping up a new-build home could slash their mortgage rate to below 2% using a little-known scheme, hugely reducing their monthly repayments. The Own New Rate Reducer scheme works by using an incentive from a new-build property developer to bring down the interest rate on your mortgage for the first few years. Housebuilders often offer buyers perks such as topping up their deposit, paying their stamp duty, contributing towards legal fees or throwing in upgrades. But under the Rate Reducer scheme, the developer instead contributes 3% or 5% of the property’s purchase price towards the buyer’s mortgage. Sign up for the Money newsletter Thank you! That money is passed to the lender through Own New and is used to subsidise the interest for the homeowner, slashing their monthly repayments during the initial fixed period. Matt Coulson, founder at mortgage brokers Heron Financial, said: “Instead of the builder handing you an incentive as a cash lump sum, the money goes to your lender to cut your mortgage rate for the first few years. “So, the monthly payment comes down, sometimes substantially.” For example, Furness Building Society is currently offering a two-year fixed Rate Reducer mortgage starting from just 1.35%, according to the firm’s website. You typically need to have either a 3% or a 5% developer incentive to access the scheme. For comparison, the best two-year fixed-rate deal on the market right now for an 80% loan to value – the amount you borrow versus your deposit – is 4.79% with First Direct, according to Moneyfacts. Most read in Money Buyers with smaller deposits can also use the scheme. Someone with a 10% deposit taking out a £200,000 mortgage could access a 2.43% two-year fix through Furness BS – almost half the average comparable rate. The scheme isn’t just for first-time buyers and can also be used by people moving to another home. More than 60 housebuilders work with Own New, including Barratt, Bellway, Persimmon, Taylor Wimpey and Cala, although only certain developments and plots may qualify. It’s worth asking the developer of your new-build property if they will take part in the scheme before buying if you want to use it. Is the scheme a good idea? Property experts agree that the scheme is broadly a good way to help people onto the property ladder who may struggle with high monthly repayments. But they warn there are a couple of catches to bear in mind. First, the discounted rate only lasts for the initial two or five-year mortgage term, after which borrowers will need to remortgage or move on to their lender’s standard variable rate. This means repayments could jump sharply if you don’t switch to a new fixed deal. You also typically pay a ‘premium’ to buy a new-build home, so could overall be better off buying an older property in good shape. David Stirling, a financial adviser at Mint Wealth, said: “For first-time buyers struggling with affordability, a meaningfully lower monthly payment in the early years can be significant, but buyers need to go in with their eyes open. “New builds carry a premium over second-hand properties, the subsidised rate lasts only for the initial fixed term, and when it ends you are back in the open market at whatever rate is available then.” Buyers should also compare the Rate Reducer incentive with other perks they could negotiate from the developer, such as a reduction in the purchase price, as these may end up being better value overall. The range of property developer incentives on offer has hugely increased over the past few years, and experts say it’s currently a buyer’s market – so you may be able to haggle a good deal on a new-build home. For example, developer Berkeley Group has offered to pay for up to two years of fees at a local private school if families purchase one of its homes at its Trent Park housing estate in Enfield, North London. The fees cost up to £20,880 a year for children aged 11 and over, meaning buyers would save up to £41,760 over two years. And the Urban Picturehouse development in Sidcup, just outside London, is offering to cover service charges up to £7,500 for the first two years after you buy your home. Mr Coulson said: “The scheme could be a good idea for someone who’s got their deposit sorted and whose worry is the monthly cost rather than finding cash up front. “But if you’d rather have that lump sum towards your deposit, a traditional incentive might serve you better, so it’s a genuine trade-off, not a free lunch.” Comment now