The Government has launched its new ‘Help to Build’ equity loan scheme, designed to help self-builders in England access mortgage finances with a low deposit.
Full details of the scheme, which will be run by Homes England, have been released by the Ministry of Housing, Communities and Local Government. The broad outline of the scheme was initially proposed last April.
The structure of these loans will be similar to the popular ‘Help to Buy’ scheme’. It is open to self-builders, who are managing the project themselves, and ‘custom build projects, where the home buyer is working with a professional homebuilder.
To qualify for a Help to Build loan, borrowers will need just a 5 per cent deposit. The government will then offer an equity loan which can be between 5 and 20 per cent of the total estimated cost – and up to 40 per cent for London builds. The remaining cost of the project is covered by a self-build mortgage.
No interest payments are charged on the equity part of the loan in the first five years. Normal interest charges apply to the commercial self-build mortgage.
This Help to Build loan will cover projects up to £600,000. This will include the cost of the land if builders don’t already own it. The maximum on build costs is £400,000.
Those granted a government an Help to Build equity loan will have three years to buy the land and build the home.
The government information states that will the size of this equity loan will be based on the estimated costs to buy a plot of land and build them home, the amount that borrowers pay back — either at the end of the mortgage term, or sooner if the house is sold, or they decide to remortgage — is calculated as a percentage of their home’s market value at this time.
The first interest payment will be 1.75 per cent of the equity loan amount you borrowed (which represents the equity loan percentage of the estimated land and build costs).
Interest will go up each year in April by the Consumer Price Index (CPI), plus 2 per cent. If the CPI falls to below zero, the interest rate will increase by 2 per cent.
This scheme has been welcomed by specialist mortgage providers who say it will provide a “major boost” to the self and custom build sector. The point out that government funds of £150m have been allocated to the scheme over the next four years.
BuildLoan says it has worked closely with Homes England over the last few years to help get this scheme of the ground.
It adds that as with Help to Buy, brokers will have a big part to play in raising awareness of the scheme and with the distribution of the lenders’ products.
BuildLoan CEO Raymond Connor says: “The fact that people only need to find a 5 per cent deposit by using this scheme, instead of typically 20-25 per cent without it, is an extremely attractive proposition.
“Brokers should familiarise themselves with the Help to Build Equity Loan Scheme, as I can guarantee there will be lots of interest from people wanting to build their own home.
“BuildLoan will be working with our lender partners to develop products to support the Help to Build Equity Loan Scheme and make sure we are ready to lend as soon as we get the green light.”
Applications for the scheme will open this winter. The government has said it hopes this will encourage more home to be built and more homes that meet home-buyer needs be in terms of location, size scale or energy efficiency.
Darlington Building Society confirmed it will be one of the first lenders to offer Help to Build mortgage in conjunction with BuildLoan. Chief executive Andrew Craddock says: “Building sufficient homes to meet increasing demand remains a key challenge for our country and Darlington BS views the introduction of Help To Build as an important step towards supporting the delivery of self and custom build housing at scale.
“We believe this initiative supports the green agenda by opening up greater opportunities to build high-quality, well-designed, and energy-efficient homes – thereby making a valuable contribution towards the net zero housing ambitions.”
