Help to Build: the government's self-build home scheme explained

Help to Build: the government's self-build home scheme explained

By Nicky Burridge

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Not all Grand Designs have to blow an average homebuyer's budget. A new scheme aims to make it more affordable and easier to get a mortgage if you’re building a home yourself.

Fancy building your own home but don’t have a big deposit? 

The government’s new Help to Build Equity Loan scheme could be for you. Here’s the lowdown on how it works.

1. What is Help to Build?

The Help to Build Equity Loan Scheme is a new government initiative for people who want to build their own home.

It helps people with only a 5% deposit get a cheaper mortgage by topping up their deposit with a loan that is interest-free for five years.

The government has earmarked £150m for the scheme over the next four years.

2. How does Help to Build make it cheaper to self-build?

People who want to self-build a property will put down a 5% deposit with a lender offering self-build mortgages.

The government tops this deposit up with an equity loan of up to 20% of the land and building costs of the home, rising to 40% in London. 

This means, instead of borrowing 95% of their home’s value, they are only borrowing 75% from their mortgage lender.

Interest rates on mortgages for people borrowing a lower chunk of their home’s value are cheaper than those for a 95% mortgage. 

This is because there is less risk that the lender will lose money if the borrower defaults on the mortgage.

As a result, the equity loan helps to make self-build mortgages more affordable for people with small deposits.

3. How does the Help to Build equity loan work? 

The Help to Build loan from the government is interest-free for the first five years.

After this, interest is charged at a rate of 1.75% in the first year. 

The interest will increase in April each year by the rate of the Consumer Prices Index, plus 2%.

You will also pay a £1 a month management fee for the lifetime of the equity loan.

You don’t have to repay the loan until the end of the term, which is usually 25 years. But, you will need to repay it earlier if you sell your home or repay the mortgage.

The amount you owe the government will move up or down in line with changes to your home’s value.

For example, if your property’s value increases by 10%, so will the amount you need to repay.

The good news is that if the value of your home falls, so will the amount of money you owe to the government for the equity loan.

You can repay the equity loan early if you want to. 

4. Can anyone apply for Help to Build?

Help to Build is only available to people building a property in England.

You can be either a first-time buyer or an existing homeowner, but the property you are planning to build must be your only home.

You must also be able to qualify for a self-build mortgage from a bank or building society that is part of the scheme.

So, if you’re a property developer or want to build a home to rent out, you won’t qualify for Help to Build.

5. How do I apply for Help to Build?

The first stage is to secure a self-build mortgage either with a lender that is registered for Help to Build or through a broker.

Most banks need you to have outline planning permission where you want to build before they will approve a mortgage. 

Once the mortgage is agreed, you can apply for Help to Build through Homes England.

If you are successful, you will receive an equity loan offer based on the estimated cost of buying a plot of land and building your home.

From this point, you have three years in which to buy land and build the property.

Homes England will pay the equity loan to the lender when the property is complete.

6. Can I use Help to Build on any value home?

The Help to Build scheme does have some financial restrictions.

The total cost of your self-build project cannot be more than £600,000. 

This includes the cost of buying the land on which you want to build your home. 

The building costs themselves cannot be more than £400,000.

You must also pay for any professional costs separately. For example, an architect’s fees or engineer’s report.

7. Can I use Help to Buy for a self-build?

No. Help to Buy is a different government scheme. It can only be used by first-time buyers to purchase a new-build property.

The way the scheme operates is very similar to Help to Build, though.

Buyers using Help to Buy only need a 5% deposit. The government then tops this up with a 20% equity loan, or 40% in London.

As with Help to Build, this loan is interest-free for the first-five years.

One big difference is that there are regional limits on the maximum value of a property you can purchase using Help to Buy.

These caps range from £186,100 in the North East to £437,00 in the South East and £600,000 in London.

Want someone else to build your next home? Find out more about Help to Buy.