A scheme to help people to build their own homes with just a 5% deposit has been officially launched.
The Help to Build Equity Loan scheme aims to make self and custom building more affordable and has been hailed as a ‘gamechanger’ for those people who want to create their own home from scratch.
Homes England, the government’s housing agency, announced the scheme and also unveiled details of the first mortgage which would provide the finance for would-be homeowners undertaking this kind of project.
BuildStore in partnership with Darlington Building Society will be providing the mortgage, which is available from today (Monday 27 June).
Raymond Connor, CEO of BuildStore, explained why the scheme had been created “The government wants more people to build or commission their own homes and the Help to Build Equity Loan Scheme in England will make it easier for people to do that.
He added: “The scheme makes it more affordable for people with less cash of their own to put into their project and gives them more choice in designing the home they wish 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, which runs the Help to Build scheme, has a large register of people who have already expressed their interest in the scheme. Our own database consists of almost 1,000 people who want to take advantage of Help to Build.”
What is self and custom build?
Self and custom build are two distinct types of new build housing that have been growing in popularity.
Self build involves would-be homeowners buying the land and emploingy contractors to construct their home.
You are likely to incur planning and design costs of typically £25k to 30k over and above build costs, so will usually need to find this in addition to the 5% deposit.
Custom build is where a developer buys the land, and the homeowner chooses the plot. They work alongside the developer and decide on the look and layout of their new home. Most of these costs will be included in the agreed price of the build.
How does the Help to Build Equity Loan Scheme work?
To apply for the Help to Build Equity Loan Scheme, borrowers will need at least a 5% deposit and a mortgage of up to 95% of their land and build costs.
The maximum is £600,000 for land and build costs, so in that case you would need a £30,000 deposit and a mortgage for £570,000. The money is released in stages as the build progresses.
Under the scheme, borrowers have three years to build their home. Upon completion, the Help to Build Equity Loan is paid to the mortgage lender, which will reduce the mortgage balance owed to the lender.
Borrowers can pay back their equity loan at any time after the build is finished.
The equity loan provided by the government can be up to 20% of land and build costs outside London and up to 40% within London.
Interest payments on the equity loan are free for the first five years and interest is charged after that starting at 1.75% in year six and increasing each year in small increments.
What is the Help to Build Mortgage?
There are two products in this first Help to Build Mortgage range – both are three-year discounted rates at either 5.39% or 5.99%.
The mortgage is paid back on an interest-only basis and once the build is complete, the Help to Build Mortgage switches to a standard repayment mortgage. This must be in place for the duration of the equity loan.
The Help to Build Mortgage offers advance stage payments which means borrowers receive funds before the start of each stage of their project.
There are usually around four or five stages and payments are linked to the project costs at each stage.
They will also benefit from stage payments being linked to the project costs with no risk of receiving less than expected due to an interim valuation.
How do I pay back the equity loan?
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 they sell their home.
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.
So, if the value of the property goes up the amount to pay off the equity loan will go up, and if it goes down in value, the amount to pay off the equity loan will be less than originally borrowed.
Does this Self Build apply in Scotland?
Thanks for your question. Here’s the response from Raymond Connor, SEO of BuildStore: “It is not available in Scotland, Wales or Northern Ireland. The scheme is only in England and is run by Homes England. We are not aware of anything happening in the other countries – it is up to the devolved government’s if they want to follow England’s scheme.”