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Sub-1% mortgages could be set to make a return for people buying new-build homes, just as developers have come under fire for potential breaches of competition rules.
At a time of high mortgage rates, a new scheme might be music to the ears of struggling first-time buyers trying to get on to the property ladder - but there are some drawbacks.
Here, Which? looks into how the scheme will work and explain why some of the UK's biggest housebuilders are facing an investigation by the competition watchdog.
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The housing platform Own New has launched a new 'Rate Reducer' mortgage scheme.
The scheme enables homebuyers to get cheaper mortgage rates when they buy a new-build home. Some borrowers may qualify for a rate of below 1%.
It works like this. When housebuilders market homes, they often offer incentives to tempt buyers. These commonly include things like free stamp duty and legal fees, or cashback on completion.
The Rate Reducer scheme instead uses the incentive pot put aside by the housebuilder and offsets it against the buyer's mortgage rate.
This allows the buyer to benefit from cheaper repayments for the first two or five years of owning the house.
Initially, the scheme is only available on properties built by Barratt Homes, though other major developers such as Bellway, Persimmon, Taylor Wimpey and Berkeley are set to join soon.
Likewise, only two lenders - Halifax and Virgin Money - are initially offering deals, though others such as Furness Building Society have signed up.
If you're interested in using the scheme, you'll need to find a property with a participating housebuilder. They will then refer you to a mortgage broker for advice.
The Rate Reduction scheme provides a cheaper rate during a two-year or five-year fixed mortgage term.
How much cheaper the rate will be will vary depending on a range of circumstances, including the size of the incentive pot offered by the housebuilder, the value of the home, the lender you use, and your overall mortgage term.
Own New says rate reductions of up to 4% may be available. In one example, it says if a housebuilder invests an incentive equal to 5% of the value of the house, the mortgage rate for someone borrowing at 60% loan to value could be reduced to just 0.99%, around 3% cheaper than the current market-leading deal.
Other examples include a potential rate of 1.83% for someone borrowing at 75% loan-to-value, and 3.78% for someone borrowing at 90% loan-to-value.
These rates are significantly cheaper than those available on the standard market. Lower rates have two benefits for buyers. Firstly, you'll pay less in repayments each month, and secondly, you'll repay more of the capital early on in your mortgage term.
However, there are some downsides. The biggest is that the reduction only applies for the first two or five years, so borrowers will likely face a substantial jump in their interest rate - and thus their monthly repayment - when they come to remortgage.
Own New has some safeguards in place. It requires borrowers to get advice from a specially-trained mortgage broker before applying, and mortgage lenders will undertake their usual stress-testing to ensure the applicant could afford repayments if the rate went up.
This scheme won't be the right option for everyone. You'll also need to consider the following:
This new scheme has been welcomed by housebuilders, but some less positive news has emerged for some of the biggest developers.
This morning, the Competition and Markets Authority (CMA) said it had found evidence that developers may be sharing 'commercially sensitive information' that could influence the speed homes are built and the prices they're being sold for.
The regulator says it has launched an investigation into Barratt, Bellway, Berkeley, Bloor, Persimmon, Redrow, Taylor Wimpey and Vistry.
The announcement comes after a 12-month market study, in which the CMA found flaws with the planning system and issues with the quality of newly-built homes. It concluded that 'housebuilders don't have strong incentives to compete on quality and consumers have unclear routes of redress'.
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