The government has launched its prospectus for a new Help to Build equity loan scheme to enable more people to custom or self build their own home.
Help to Build is designed to make commissioning your own home an affordable, accessible choice for those with smaller mortgage deposits.
Following hot on the heels of Richard Bacon MP’s review of the sector, Help to Build has the potential to be the cornerstone of a wide-ranging package of measures to deliver more choice and quality through self and custom build.
Opening to applications this winter, Help to Build will enable people with a smaller deposit (starting at just 5%) to access self build finance. The scheme is modelled on the Help to Buy (which was aimed at those looking to purchase new developer-built housing).
A standard self build mortgage requires a deposit of around 15%, so Help to Build significantly lowers the entry barrier to creating an individual home. It achieves this by offering government-backed loans of up to 20% (or up to 40% in London) to boost your own deposit.
The amount you will be offered is based on the estimated costs to buy your specified plot and build your planned home.
Your total budget for the land and build must not exceed £600,000. The cost of the build itself is capped at £400,000, and you must complete the project within three years.
Government expects the scheme will facilitate delivery of up to 40,000 new custom and self build homes.
The government wants to ensure people can access normal self build mortgages. Unlike conventional mortgages, this type of finance pays out in stages linked to the progression of work on site – so you know you’ll have the money when you need it.
So, you apply for a standard self build mortgage via a Help to Build-registered lender. The Help to Build loan itself is then paid out to your lender after the build is complete, at the point your self build mortgage switches to a standard repayment mortgage.
For example, if you were to build a house for £400,000, you could put down a 5% deposit of £20,000, with the remaining £380,000 provided by your self build mortgage.
Once the project is complete and you switch to a standard mortgage, the government will release your Help to Build loan of up to 20% (£80,000 in our example). So, in effect, the lender is ultimately providing a smaller mortage of £300,000.
“Lenders are uniquely able to offer low-deposit products under Help to Build, and therefore provide consumers with a bigger mortgage than they might have had, because they know they will be paid 20% by the government on completion,” says Andrew Baddeley-Chappell, CEO of the National Custom and Self Build Association (NaCSBA).
The scheme will launch in full this winter, and the government is inviting applicants to be first in line to receive more information by registering their interest in Help to Build.
You can apply for the government-backed equity loan scheme if you:
You can access Help to Build whether you are a first-time buyer or an existing homeowner.
The Help to Build equity loan is interest-free for the first five years. However, there is a management fee of £1 per month until the loan is repaid.
From year six, you will start to pay interest on the loan. This will start at 1.75%, and then rise by a minimum of 2% plus CPI (consumer price index) from year seven onwards.
Importantly, the total amount you pay back is based on the market value of your home at the time you choose to repay (not the original amount you borrowed).
So if the value of your home rises or falls, the total amount you owe will change. The exact details of how this will work are unclear.
Easier than you might think. According to an article in The Times, research by NaCSBA and property portal Zoopla has found £600,000 would cover the plot and construction cost for a four-bed house in two-thirds of England.
The research also found that, under Help to Build, a joint income of £40,000 would enough to gain sufficient finance for a three-bed house in a third of England’s areas.
In Build It’s experience, many self builders complete the construction phase of their projects for significantly less than the £400,000 Help to Build cap. Just check out these stunning bespoke homes built for under £200,000.
If you’re running towards the high end of the Help to Build cap, the trick will be ensuring you keep within budget. That starts with ringfencing a decent contingency (typically 10-15%) to deal with issues along the way.
You may also wish to explore the most cost-certain routes to a bespoke home, such as a fixed-price custom build, shell house or turnkey package. “Help to Build is a particularly good fit for the custom build market,” says Andrew Baddeley-Chappell.
“From the moment Help to Build was announced, we have been in full support. Finally, the UK is moving in the right direction regarding self and custom building.
With self building becoming more affordable, we hope that more people will feel able to purchase a plot. It’s clear that there is a desire to self build among the general population. People have simply not been given as much as support as needed to explore this route until now.
We will be releasing a number of new plots that will be eligible for this government funding in the near future. By taking a more innovative approach to house buying, we can make ‘settling’ a thing of the past.”
“The launch of the Help to Build prospectus is another important milestone for custom and self build homes. It will mean more people can have the new home they actually want, including those with smaller deposits, sound plans and big hopes.
The greater choice enabled by this scheme will lear to more affordable and better homes that are more wanted and more sustainable.
Self and custom build homes will now be part of the solution for the large numbers of people whose cultural, ecological, physical or emotional needs are not currently met by the new build market.
In addition, there are many areas where speculative builders are choosing not to build at the speed and scale that’s needed. These areas will benefit from the new housing that Help to Build will facilitate.
Landowners and local authorities can be more confident in self and custom build as a result of this scheme, as they know there is an affordable mortgage product that can be accessed by people with smaller deposits.”