The need for the Help to Build: Equity Loan scheme

A deadline has been set for Help to Buy

The Help to Build scheme, launched in 2022, opens up the opportunity for thousands of people to build their own homes. Typically only viable for those with adequate savings, self-build projects are now accessible for borrowers with a small deposit. This low-deposit scheme isn’t just available for experienced homebuilders either. You can commission a home if you prefer not to build one yourself and first-time buyers can take advantage of the scheme to get on the property ladder.

What is the Help to Build: Equity Loan scheme?

Help to Build is designed to increase the affordability of self-build and custom-build projects. Provided by the government, an equity loan is available to borrowers in England for between 5% and 20% of your estimated land and build costs. If you’re building a home in London, an equity loan of up to 40% is provided. You can spend up to £600,000 on your new home, depending on your eligibility. This includes the cost of the land and up to £400,000 for the costs to build your home.

The requirements

To benefit from this scheme, you need a 5% deposit and a 95% self-build mortgage via a lender registered with the scheme. This will be on an interest-only basis. Unlike a standard residential mortgage where the funds are released in one go, a self-build mortgage is released to you in stages throughout your project. This helps keep you on track and within budget when building your home.

What happens next?

Your home must be built within 3 years of receiving your formal equity loan offer. Once it has been completed, the equity loan will be released to the lender. At that point, your self-build mortgage will switch to a repayment mortgage. The equity loan will reduce the amount you need to borrow for this. No interest is payable on the equity loan for 5 years. Interest will then be charged from year 6 until you have repaid the equity loan in full.

Repaying the equity loan

Your equity loan can be repaid in full or in part at any time. The amount will be calculated as a percentage of your home’s market value at that time. This means that if property prices have increased, you’ll repay a higher amount. If property prices have decreased, however, you’ll repay a lower amount. Part payments must be at least 10% of the market value of your home.

Your equity loan must be completely repaid either by the end of the term, when you sell your home, when your repayment mortgage is repaid or if you’ve breached your equity loan contract and have been asked to repay it in full. Whilst the government retains its equity share until you’ve repaid the loan, you have full ownership of your home.

What can the Help to Build equity loan be used to fund?

There are various uses for the Help to Build equity loan:

  • Buy a plot of land and build a new home on it
  • Build a custom shell home. This is when a weathertight structure has been built by a custom builder and you then deal with the entire property interior.
  • Build an airspace development. This utilises unused space on the rooftop of an existing building.
  • Demolish an existing property and build a new home in its place.
  • Convert a commercial property into a residential one.

You cannot use the equity loan to:

  • Build more than one home
  • Make upgrades to your home
  • Build a second home. You must live in the new home you build. If you have any other residential property, you must sell it within 12 months of building your new home.

Why was the Help to Build: Equity Loan scheme created?

With a desperate need for more housing in England, the government introduced this scheme to make self build, custom build and shell build homes more affordable. Unless you have adequate savings to cover your project, you normally need to apply for a self-build mortgage. This requires a substantial deposit, putting this type of mortgage out of reach for many borrowers. Using the Help to Build: Equity Loan scheme, however, you only need a 5% deposit and to secure a 95% self-build mortgage via a participating lender.

As the equity loan of between 5% and 20% (or 40% in London) reduces the amount you need to borrow once you switch to a repayment mortgage, it’s a much cheaper way to self-build. You also benefit from an interest-free equity loan for the first 5 years. This makes it easier to afford your monthly payments.

With these factors combining to help borrowers afford to build their own homes or hire someone to build homes for them, self, custom and shell build homes are much more accessible. As such, the government expects an additional 30,000 to 40,000 new homes to be built each year. This will give the property market a much-needed boost.

Not only does this scheme offer a solution to creating more new homes but it aims to get more people on the property ladder as this scheme is also open to first-time buyers. Now, first-time buyers have the opportunity to build a home that meets their specifications rather than buying an existing one. The demand for this scheme should also hopefully encourage more lenders to offer low-deposit mortgages.

Benefit from an affordable way to build your own home

If you’ve been dreaming of building your home or commissioning someone to build it for you but lack the financial means to do it, the Help to Build: Equity Loan scheme may be the solution you’re looking for. Get in touch with our mortgage brokers on 01322 907 000 for more information and to check your eligibility for the scheme.