Do you dream of building your own home but simply don’t have enough funds for your self-build project? The government’s Help to Build scheme may be just the solution you’re looking for.
What is Help to Build?
The Help to Build scheme is designed to make self-build or custom-build projects more affordable. Available in England, you can receive an equity loan from the government that ranges from 5% to 20% of the total estimated cost. This cost includes buying a plot of land if you don’t already own one as well as the cost to build your property. If you’re in London, the equity loan provided is up to 40%. Depending on your eligibility, you can spend up to £600,000, which we’ll explain in more detail below. You only need a 5% deposit to apply and must secure a self-build mortgage from a lender registered with the scheme.
How does Help to Build work?
Whether you want to commission a home or build your own one, this low-deposit scheme can help to turn your dream into a reality. Not just for those experienced in building projects, this scheme is also available to first-time buyers. It’s ideal if you only have a small deposit as you can apply with just 5% of the estimated land and build costs. You also need to secure a 95% self-build mortgage via one of the registered Help to Build lenders. As mentioned above, the government will provide a Help to Build equity loan of between 5% and 20% of the estimated land and build costs. Up to 40% will be provided for London self-build projects.
The self-build mortgage will be released to you in stages by the lender throughout your project. This allows you to buy a plot of land and build your home. When you’ve finished building your home, which must be within 3 years of receiving the formal equity loan offer, the equity loan will be released to the lender. This reduces the amount you need to borrow for a repayment mortgage, which you will switch to after the lender has carried out the necessary checks. You’ll benefit from full ownership of your home. The government will retain its equity share until you have repaid the loan, however.
Repaying the Help to Build loan
Rather than making monthly repayments, your equity loan can be repaid at any time in part or in full. When you’re ready to make a payment, the amount will be calculated as a percentage of the market value of your home. Part payments must be at least 10% of your home’s market value at that time.
Your equity loan needs to be repaid in full either at the end of the loan term, which is usually 25 years, when your repayment mortgage is repaid, when you sell your home or if you’re asked to repay it in full due to a breach of your equity loan contract.
How much can you borrow?
As long as you’re eligible, you can spend up to £600,000. This amount has to include the cost of buying a plot of land if you don’t already own one and up to £400,000 to build your home. The amount you can borrow is based on the total estimated land and build costs and the equity loan percentage that you’re eligible for.
For example, the estimated land and build costs for your future home in Welling, Kent, are £400,000. You need to pay a 5% deposit of £20,000 and secure a 95% self-build mortgage to cover the remaining £380,000. For your equity loan, assuming you’re eligible for 20%, you can borrow £80,000. This reduces the amount you need to have for the repayment mortgage you’ll switch to from £380,000 to £300,000.
Using the same estimated land and build costs of £400,000, the amount you can borrow differs when building your home in Pimlico, London. You still need a 5% deposit of £20,000 and a 95% self-build mortgage for £380,000. But, as long as you’re eligible for a 40% equity loan, you’ll be able to borrow £160,000. You then only need to take out a repayment mortgage for £220,000.
The equity loan is interest-free for the first 5 years. Interest becomes payable in year 6 and continues until you’ve repaid the loan in full.
Eligibility for the scheme
To be eligible for the Help to Build government scheme, you need to be 18 years or older. You must also have a right to live in England. You must be able to secure a self-build mortgage with one of the Help to Build mortgage lenders and use the property you build as your only home. Affordability checks will be carried out for your self-build mortgage as well as for your equity loan. Be sure to have gained outline planning permission for the plot of land before you apply to the scheme. This is because most lenders require proof of this before approving self-build mortgages.
Apply for an equity loan via the Help to Build scheme
Get in touch with our expert mortgage brokers when you’re ready to proceed with your self-build or custom-build project. They can check your Help to Build scheme eligibility and advise you on all of the information you need to gather for your application. They can also help you to secure a competitive self-build mortgage through the right lender. You can rest assured that the process will be as straightforward as possible. To begin the journey to building your bespoke home, give us a call on 01322 907 000. If you prefer, send an email to us at email@example.com. One of our self-build mortgage brokers will reply to you as quickly as possible.