Help to Build: Equity Loan – A Positive Future Ahead for Self-builders

The Government’s new launch of the Help to Build equity loan is now available, creating an optimistic future for those who have previously been unable to afford the high cost implications of self-building.

As of 27th June 2022, the four year scheme supported by £140m of government funding will go towards the government’s bid to contribute to between 30,000 – 40,000 new homes a year in England. The scheme acts in response to MP Richard Bacon’s report which suggested that it would be possible to increase the number of new homes in order to reach this figure. This will see a huge surge from the 13,000 self-build homes which were constructed in 2021.

Not only will the scheme be available for self or custom builds, but also; buildings on purchased land; conversions of commercial properties for residential use; new build flats in existing buildings; and conversions of shell buildings. The loan cannot be used on an existing house you own and is only offered on one home which must be your only residence.

Self-builders will be required to put down a 5% deposit, substantially lower than the typical self-build mortgage deposit of 15%. By significantly dropping the barriers to undertake a self-build project, many more self-builders will be encouraged to embark upon their dream self-build project.

In order to receive the equity loan, you will need to obtain a self-build mortgage from a lender registered under the Help to Build equity loan scheme. After a successful application for the Help to Build loan, you will receive an equity loan offer based on the cost of the self-build, and land if applicable. Upon completion, the equity loan will be paid to the registered lender.

The loan itself will offer up to 20%, and 40% in London, of the total estimated cost of the build. A spend of up to £600,000 on the self-build and land, and no more than £400,000 on the build itself, will be supported by the loan. Following the equity loan being offered, you will have 3 years to buy the land and build your new home, with the mortgage lender releasing funds at various phases of the build.

An interest free first 5 years will help in order to lower the deposit and free up capital. From year 6, you will be required to pay back 1.75% interest, until year 7 when you must pay back a minimum of 2% plus CPI (Consumer Price Index). The interest is reflected by the market value of the property at the time you choose to repay, taking into account any rise or fall in the value of the property. Just £1 will be taken every month as a management fee until the loan is repaid at the end of the term (on average 25 years).

Overall, the new Help to Build Equity loan offers attractive terms for those who have long sought-after pursuing their own self-build project but been put off by the high expenses which have previously been required to put down.