Own New Scheme
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Own New Scheme
What is the Own New scheme and how does it work?
Own New is a way to use a contribution from the developer towards a mortgage. Historically, a developer may have given a buyer a contribution towards a deposit, or cashback on completion. This scheme uses that contribution from the builder to reduce the interest rate of the buyer’s mortgage.
Who is Own New for? How do I know if it is right for me?
The scheme is available for both First Time Buyers and home movers.
Whether it’s right for the individual very much comes down to their individual circumstances. It will also depend upon the particular development you’re looking at, and the specific plot.
At the moment, not every builder is signed up to this scheme, so you would need to find a site that’s advertising this as an available option. Also, the advice process you go through has to be accredited to the Own New scheme.
The advisor would look at your personal circumstances, how much deposit you have and whether you have a mortgage at the moment – or if you’re a First Time Buyer. They will also see what other incentives the builder is able to give. Own New sits alongside all the other contributions a builder can offer.
As always, speaking to an experienced advisor can help you decide if Own New would work for you. It may be that you don’t need to use it, because there are other schemes or options to consider.
What deposit do I need and how much can I borrow using the Own New scheme?
The deposit would generally be around 5% of the purchase price of the new build. That’s the standard minimum amount required for a mortgage.
How much you can borrow is driven by the affordability checks that your advisor will do, looking at your income and outgoings.
What costs do I need to be aware of? Do I still need to pay stamp duty?
With the Own New scheme, all the usual costs associated with buying a property would apply. We would still need to employ the services of a solicitor, for example.
You may need to pay stamp duty, depending on the value of the property and whether you’re a First Time Buyer or home mover. The Own New scheme doesn’t take away the costs of purchase. We would still need to factor those in.
How many lenders offer the Own New scheme and what house builders are taking part?
This is a very new scheme that’s been devised to help people purchase specific new build sites and plots. At the time of recording, there are two or three high street lenders that people will have heard of. There are also a few smaller building societies.
This is very much a developing product. We are expecting more high street lenders to come on board once they’ve had an opportunity to look at it, see how it works and how it fits in with other products that they offer. So watch this space.
Both the developer and the adviser have to go through an application process to be able to use the Own New scheme and again, the number of builders is increasing. So if you looked at a new build site recently and Own New wasn’t available, it doesn’t necessarily mean it won’t ever be. It might be that the builder is going through their own checks, as the scheme is very new [podcast recorded in August 2024].
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Can I apply for the Own New scheme if I have bad credit?
This is an interesting area. Ordinarily, if you asked me if someone can get a mortgage with bad credit, the answer would be yes. But the caveat here is that not many lenders are part of this scheme at the moment.
The high street lenders that are offering the scheme would tend to want a certain level of credit score. We probably need to get further down the line before we start to see some adverse lenders coming into Own New.
But the time of recording in August 2024, it might be a little bit more challenging than on a second hand property. It’s just because of the reduced number of lenders in the market offering this particular scheme.
What happens when I come to remortgage if I buy with Own New?
With Own New you effectively own 100% of the property, and you have a mortgage on it. If you had a five year fixed rate, when your rate comes up for review, the mechanics of remortgaging would be identical to that on a non-new build property.
The main aim of the scheme is to use a contribution from the builder to reduce your mortgage payment. For the first two or five years or so you would enjoy quite a considerably lower interest rate because of that.
But we need to consider what happens if at the end of the five years. Your fixed rate could go up to 4% or 5 %. That’s a key thing to speak to an advisor about – how affordable your payments will be once that initial discount on your rate expires.
What are the pros and cons of the Own New scheme?
The pros are being able to use that contribution from the lender to get a reduced interest rate – which directly benefits your monthly expenses. The amount given by the builder is being used in a very structured and controlled way – it’s not just them giving you £10,000 cashback that doesn’t help with the mortgage.
It is very much used directly with the lender, so the client is guaranteed for that first two to five years to benefit from a much lower interest rate.
On the downside, and we did touch on this earlier, at the time of recording in August 2024, not many lenders offer this scheme. If you don’t quite fit with the credit scoring or the income criteria with them, you might not be able to make use of Own New at the moment.
Also, there are limitations around the particular sites and plots available. It may be that you drive to a new build site and, having seen all the information about Own New, you get there and that builder isn’t offering it. But I do think that will change with more lenders and builders coming on board.
How do I apply for a mortgage through the Own New scheme? How can a mortgage broker help here?
You would go to an accredited new build site and from there speak to an advisor who is registered to give advice on Own New. From there, the actual mortgage application process is the same as usual.
This is a developing product, and more lenders are starting to look at it. If you get in touch with an adviser who understands the scheme, they should be able to quickly identify whether or not it would be something worth you considering.
There are lots of scenarios where actually you might not need to use the scheme, because they could be better ways of doing it. So speak to somebody who knows the scheme inside out – that’s our advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
