Fancy building your own home but don’t have a big deposit?
The government’s Help to Build Equity Loan scheme could be for you.
Here’s the lowdown on how the buying scheme 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. You can use it to either get on the property ladder for the first time or build your next home.
The scheme works by helping 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 £150 million for the scheme between 2021 and 2025.
The estimated costs of self-building the home cannot be more than:
£600,000 if you’re buying the plot of land and building your home (the build cannot be more than £400,000)
£400,000 if you’re building on land you already own
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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.
Your mortgage does not have to be approved at the time you apply, but to start your project and get an equity loan, you’ll need a mortgage offer from a lender.
You should talk to a lender to check you can get the right mortgage.
Your mortgage must be:
a self-build mortgage (this is a mortgage you get when building a home yourself)
from a lender that’s registered with Help to Build (check their website or ask them)
The government then tops this deposit up with an equity loan amount of up to 20% of the land and building costs of the home, rising to 40% in London.
The scheme works in making it cheaper to self-build because, instead of borrowing 95% of the home’s value, you are only borrowing 75% from the mortgage lender.
Interest rates on mortgages for people borrowing a lower loan amount 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 scheme work?
The Help to Build equity 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 full loan amount 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.
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?
You can apply for the Help to Build equity loan to:
buy a plot of land and self-build a new home on it
build an ‘airspace development’ flat (airspace developments are new properties built in unused space above an existing building)
convert a commercial property into a residential property
build a ‘custom shell home’ (where a professional builds the structure, but you’re responsible for the design and layout inside)
demolish an existing property and replace it with a new home
You cannot use the scheme to build:
more than one home
upgrades to your home
a second home - you must live in the new home and sell any other residential property you own within 12 months of the date the new home is built
Help to Build is only available to people self-building a property in England. There are different ways to:
There isn't a government-backed loan to help build homes in Northern Ireland. Find out more about raising money to build your own home in Northern Ireland.
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 buying 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 the Help to Build: Equity Loan.
At this point, Homes England will check your application to make sure you can repay the loan. It can take around 10 working days to hear back and they'll either approve or reject your application.
6. What happens after my Help to Build application is approved?
If your application is successful, Homes England will send you an equity loan offer based on the estimated cost of buying a plot of land and building your home.
You can still back out here if you want to. Or you can go ahead and accept their offer, and you then have 3 years to buy the plot of land and build the home.
You'll get parts of the mortgage at various stages of the build to cover the ongoing costs. You'll usually have made a plan for this with the mortgage lender when you applied.
When your home is complete, Homes England will pay the equity loan to the mortgage lender. You'll just need to show them your build warranty (this proves the building is finished).
If you haven't finished your self-build in the 3 years, you can request more time. But Homes England will only allow more time if the build has been delayed due to circumstances beyond your control, for example import delays, staff shortages or weather.
7. Can I use Help to Build on any value home?
The Help to Build government 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.
Find out more about the Help to Build equity loan at gov.uk
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