People who wish to build their own home through the scheme will need a deposit of at least five per cent and a mortgage of up to 95 per cent of land and build costs.
The equity loan, like Help to Buy, will bridge the gap between the deposit and the cost of building material and land. Applicants will be able to borrow up to 20 per cent of the costs across England, and up to 40 per cent in London.
The maximum amount which can be borrowed is £600,000 or £400,000 if the land is already owned. The money will be released in stages during different parts of the building process and applicants must live in the property as their primary home.
Payments are linked to project costs, so there is no risk of there being less money provided following an interim valuation.
Borrowers have three years to complete the construction of their homes through the scheme and the loan must be repaid to the mortgage provider. Borrowers can repay the equity loan at any time once the build is complete, but must be completely paid off either by the end of the mortgage term or when the borrower sells their home.
The amount repayable is based on the property’s value when the equity loan is redeemed, not the amount that was initially borrowed.
Interest payments on the equity loan are free for the first five years and after that, interest starts at 1.75 per cent in year six. The interest will increase each year in line with CPI.
Applications for the scheme will open from Monday.
Housing minister Stuart Andrew MP said: “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 launch of the scheme follows the Bacon Review from last year, conducted by South Norfolk MP Richard Bacon. In the review, which was commissioned by the prime minister, Bacon made recommendations to support self and custom builds in order to deliver up to 40,000 new homes a year.
Bacon said: “I am very pleased by the government’s warm response to my review. The government recognises the crucial role which custom and self-build housing can play in addressing the nation’s housing challenges, including delivering more affordable housing.
“Making it easier for people to build or commission their own homes helps to promote a more diverse housing market with more real choice and control for consumers.”
“There is clear evidence that getting people more involved in decisions about housing helps to deliver houses that are better designed and better built, which are greener and cost less to run and which communities are happier to see built. I look forward to working with the government to progress this important agenda,” he added.
Darlington BS and Buildstore launch
Darlington Building Society, Homes England and self-build specialist mortgage broker Buildstore have partnered to launch the first Help to Build mortgages.
There are two products, both three-year discount mortgages with rates of either 5.39 per cent or 5.99 per cent.
The mortgage is paid back on an interest-only basis and once the build is complete, it switches to a standard capital and interest repayment mortgage. This must be in place for the duration of the equity loan.
Raymond Connor, CEO of BuildStore, said: “The government wants more people to build or commission their own homes and the Help to Build Equity Loan Scheme in England will make it easier for people to do that. The scheme makes it more affordable for people with less cash of their own to put into their project and gives them more choice in designing the home they wish to live in.
“Help to Build is going to significantly boost the custom build sector, and property developers already have land earmarked for this purpose. Homes England, which runs the Help to Build scheme, has a large register of people who have already expressed their interest in the scheme. Our own database consists of almost 1,000 people who want to take advantage of Help to Build.”
Andrew Craddock, Darlington Building Society chief executive, added: “As one of our lending specialisms is self and custom build, we are thrilled to be the first to launch our Help to Build mortgage with BuildStore.”
