Homes England has launched a Help to Build Equity Loan scheme, which aims to help people self-build or custom-build their own home with a 5% deposit.

Under the new government scheme, self and custom builders will have three years to build their home.

Once build, the Help to Build Equity Loan is paid by the government to the lender and can be up to 20% of land and build costs outside London and up to 40% within London.

Payments on the equity loan are interest-only but are free for the first five years.

After that interest is charged starting at 1.75% in year six increasing in April each year by the rate paid the year before and 2% plus the consumer price index.

Borrowers can pay back the equity loan at any time after the build is finished but it must be repaid by the end of the mortgage term or when the home is sold.

The amount repayable is based on the property’s value at the time the equity loan is redeemed, not the amount that was initially borrowed.

Under the scheme, the maximum land and build costs can be up to £600,000 and borrowers will need just a 5% deposit.

The other 95% is via a Help to Build Mortgage, which can only be provided by lenders approved by Homes England, which runs the scheme.

The Help to Buy Equity Loan scheme will close to new applications at 6pm on 31 October 2022.

As part of the Homes England announcement, BuildLoan in partnership with Darlington Building Society has launched the first Help to Build Mortgage.

The two products being launched are three-year discounted rates at either 5.39% or 5.99%.

During the build, borrowers pay on an interest-only basis, so monthly payments are lower.

The Help to Build Mortgage switches to a standard repayment mortgage once the build is complete, which must be in place for the duration of the equity loan.

Darlington Building Society chief executive Andrew Craddock says: “Extending into Help to Build was a logical step as the Society has been at the forefront of self-build lending for over a decade, in partnership with BuildLoan.”

BuildLoan chief executive Raymond Connor adds: “I have waited a long time to see this scheme come to fruition and it will create a whole swathe of new build housing opportunities. People can build, or have built for them to their specification, the types of home they want to live in.”

“Help to Build is going to significantly boost the custom build sector, and property developers already have land earmarked for this purpose. Homes England has built up a large database of people registering their interest and our own database consists of approaching near to 1,000 people who want to use the scheme.”

“We have worked extremely hard to develop the Help to Build Mortgage and more lenders will be launching their products over the next six months in partnership with us.”