All you need to know about the government's new Help to Build equity loan scheme for self builders and custom builders

How would be self builders can apply for the government Help to Build loan scheme

The Government’s Help to Build scheme aimed at helping would-be self and custom builders will offically open on Monday, June 27, 2022.

Although this is a four-year scheme, speed could be of the essence as the equity loan fund is capped at £150m. Similar to the Help to Buy new-build homes scheme, the new fund will enable you to apply for an equity loan of between five per cent and 20 per cent of the estimated land and building cost.

The loan is interest-free for five years. In London, where costs are higher, the loan is up to 40 per cent of land and build costs. This will allow borrowers to access low-deposit mortgages on both self and custom built homes.

The self and custom build equity loan scheme opens on Monday, June 27

Housing minister Stuart Andrew says: "Help to Build will open for applications on Monday, making self and custom-designed homes an option for those who don’t have Grand Designs size budgets. Most people are currently priced out of this option because it can require huge sums up front. The average for a self and custom build mortgage deposit is around 25 per cent of land and building costs."

He adds: "Through the Help to Build scheme we will help thousands more people onto the property ladder by giving them the opportunity to build homes that are perfectly tailored to their needs and in the communities they want to live in. This innovative scheme will build on our work to break down the barriers to homeownership, as well as creating new jobs, supporting the construction industry and kickstarting a self and custom build revolution."

The National Custom and Self Build Association says: "The scheme is needed because the custom and self build market is largely served by a network of smaller lenders, mainly building societies, whose capacity to support the sector – and in particular those with smaller deposits – is constrained by the financial rules that they must work within."

Self-build is when you organise the build yourself from finding a plot and applying for planning permission to hiring architects and a builder. Custom build is either a single dwelling commissioned by an individual and built by a developer or one of a group of homes on serviced plots that are built by a developer with the offer of bespoke design for the buyer. the Government hopes that it will result in 30,000-40,000 new homes a year in the UK.

You can apply for Help to Build if you are planning to live in the property as your only home and if you secure a self-build mortgage from a lender registered with Help to Build. Most lenders will need you to have outline planning permission for the land you want to build on, before they will assess or approve your self-build mortgage. Successful applicants will be offered an equity loan based on the estimated costs to buy a plot of land and build the home. The loan will be given after your property has been built.

*If you are eligible, you can spend up to £600,000 on your new home. This must include the cost of the land, if you don’t already own it, and no more than £400,000 on the cost to build it.

You will need a deposit of at least five per cent for the equity loan, along with a self-build mortgage.

*After being offered the equity loan, you have three years to buy the land, if needed, and build your home. When the property is complete, the Government will pay your mortgage lender the equity loan amount offered to you, and your self-build mortgage will switch to a repayment mortgage. You will begin to pay interest on the equity loan from year six.

*The amount lent to you is based on a percentage of your estimated land and build costs. However, the amount you pay back is worked out as a percentage of your home’s market value at the time you choose to repay. If the market value of your home rises above the estimated land and build costs, so does the amount you owe on your equity loan. If the value of your home falls below the estimated land and build costs, the amount you owe on your equity loan falls too. Note that the value of a self-build home can be significantly higher than the cost to build it.

The loan must be repaid at the end of the mortgage term, which is usually 25 years, and there is a £1 monthly management fee for the life of the loan.

Andrew Baddeley-Chappell, CEO of the National Custom and Self Build Association, which campaigned for Help to Build, said: “The greater choice enabled by this scheme will lead to more affordable and better homes that are more wanted and more sustainable.

“This scheme addresses a key constraint for many custom and self-builders and should in turn empower landowners, enablers and local authorities to ensure that sufficient land with planning permission is made available to meet the demand and to build back better.”

"Contrary to common perception, in most cases custom and self-build is not about people undertaking the build themselves. Rather, it is about the homeowner having control over the design and specification of their project, enabling them to create the home they want, rather than the one someone else believes they would like. It means that new homes will now be part of the solution for the large numbers of people whose cultural, ecological, physical or emotional needs are not currently met by the new-build market.”

He adds: "Custom and self-build is common everywhere else in the world.”

*For details of the scheme Visit www.ownyourhome.gov.uk/scheme/help-to-build/