Own New Scheme

What is the Own New scheme and how does it work?

The scheme itself is very simple. When you buy a new build property, some developers will offer a cashback as an incentive. You could use this to get a lower mortgage rate than you would do elsewhere.

Essentially, the lender receives that cashback bakes it into a cheaper product. We need to reiterate that interest rates change all the time.

Everyone’s situation is different and what you might be offered will be different. But to contextualise this, as we talk today in June 2024, there is currently a two-year fixed rate at 0.99% with no catches. There’s no extended tie-ins.

It’s a straightforward mortgage with a much lower interest rate, because that cashback is baked into the product. You would need a 40% deposit for this offer, and not everyone will be eligible, but it will equate to an APR of 5.4% – which is the variable rate you may pay in the future plus all associated fees.

When the Bank of England is at 5.25% and you could borrow under 1% with no catches, that’s an appealing deal. The only caveat is that this is for a new build property where the developer takes part in the scheme and a lender that offers these products.

On the Own New website, you could see all the developers and even developments in your area. Very proudly, Heron is one of the few brokers that could actually provide this.

As we’re recording, the scheme has been live for a few weeks. Lots of things have come to the market since Help to Buy ended that haven’t quite replaced it – until Own New came along.

Who is the Own New scheme suitable for? How do I know if it is right for me?

Potentially anyone. And while we use the word scheme, it might be better described as an incentive.

Anybody that’s looked at a new build home in the last 18 months [podcast recorded in June 2024] will have been presented options by the builder. Could we help with your deposit or your stamp duty? They are trying to ease that purchase in a high rate environment compared to the previous decade.

These are incentives. They want to help you buy. Own New is no different – it’s a type of incentive. It’s definitely suitable for anyone potentially considering a new build, but particularly for people that have a quite a healthy deposit.

Maybe you’ve already got the stamp duty in place, or you fall beneath a bracket so that stamp duty is either very low or non-existent. Your primary concern is keeping monthly costs down. That’s the real sweet spot for this. So if you’ve got your deposit but you’re concerned about interest rates, this is going to be appealing.

This is the conversation that a broker could have with you. Would you benefit from receiving cashback towards stamp duty, moving costs, et cetera, or if you’ve got that covered, do you want to benefit from a lower rate? Then we work backwards from there.

What deposit do I need? How much can I borrow using the Own New scheme?

The minimum deposit you need to put in is 5%. But the larger the deposit, the lower the rate you could get – down to the low level we mentioned. With banks, every 5% of deposit improves the rate. A 40% deposit or more gives you access to the cheapest ones.

In terms of borrowing, every lender will offer at least 4.5 times your income. If you earn above £75,000 to £100,000, some banks will offer you 5.5 times your income.

Something else that could be a factor is EPC. New build properties are built to a higher energy efficiency standard. That’s helping lenders’ confidence to offer lower rates, because you benefit from potentially lower bills as well, so the affordability on a new build is really good.

As more lenders join Own New, the more we will see criteria and flexibility evolve. At the moment, you could potentially get 4.5 times your income as borrowing, but other lenders out there might push that to six, depending on your circumstances.

Another great thing about this is that it’s not governed by Homes England, it’s governed by the market. So if a lender has an appetite for criteria in a certain space, they could go ahead and do that. That’s the really exciting thing about this new rate reducer.

What costs do I need to be aware of? Do I still need to pay stamp duty?

Stamp duty is a big one, where applicable. Use an online calculator because the rules do change in time. There’s often an allowance for First Time Buyers, so look that up.

Currently as we stand, if you own another property, there is a stamp duty surcharge. On more expensive homes, if you already own other property in the background stamp duty could be quite chunky, and that’s not likely to change.

Some people misunderstand the rules around the 3% surcharge. It’s not just for investment properties – it applies if you’re named on more than one set of deeds in the UK at the point of completion. People can trip over this inadvertently if they hold onto an existing property, rent it out and move into the new one.

Other costs are not major. There are solicitors costs which vary. For a real ‘sausage factory’ conveyancer it’s a few hundred pounds. A more boutique set up will cost a few thousand. With new build, developers often have preferred partners, which we normally recommend because if they’re familiar with the development, it can make life a lot easier. But you’re free to do whatever you want.

Lenders typically don’t charge survey fees these days, and on a new build you’ve got a lot of guarantees in place. So, while you could get your own survey, you’re fairly well covered.

Lenders’ arrangement fees may or may not be applicable and we’ll break all that down for you. You have the option of either paying a fee or adding onto the loan. It’s a very personal decision but if you do add it to the loan, be aware that you’re paying interest over time.

Are there ways to reduce the monthly mortgage costs?

One of the first questions I ask a client is how much you want to spend each month on the mortgage. Then we reverse engineer that mortgage for you. Do we go for a payment mortgage or interest only? Do we blend the two? There’s a lot we could do around that.

The term also makes a difference. Some banks offer 40 year mortgage terms, although it’s unlikely you’ll end up paying a mortgage for that long. You might find that 10 years down the track, the mortgage is considerably more affordable, so you might pay it off a lot faster.

It could be an interesting exercise with the Own New rate-reducer scheme to look at the monthly mortgage cost versus renting an equivalent property. It’s a real eye-opener. Essentially, the home builder is subsidising your mortgage. The difference between your mortgage versus what you could be paying in rent is pretty stark, especially as rents have rocketed up in recent years. It could be another reason to just get on with buying a home.