Help to Build scheme opens on Monday
The equity loan is based on the estimated costs to buy a plot of land and build the home and can be between 5% and 20% of the total estimated cost, rising to 40% in London.
Most people are currently priced out of self-build because it can require huge sums up front – the average for a self and custom build deposit is around 25% of land and building costs.
By lowering the minimum cash deposit to 5%, topped up with a maximum 20% equity loan and 75% mortgage, the government is hoping to help between 30,000 and 40,000 people into new homes every year.
Housing minister Stuart Andrew said: “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.”
Interest payments on the equity loan are free for the first five years, after which 1.75% interest applies with the rate increasing each subsequent year in line with CPI inflation, currently 9.1%.
Darlington Building Society is the only lender registered with the scheme so far, and is offering two three-year discount mortgages with rates of either 5.39 per cent or 5.99 per cent depending on how big a deposit you put down.
The mortgage is paid on an interest-only basis for the first three years during the construction period.
Once the build is complete, borrowers must switch to a standard capital and interest repayment mortgage, either remortgaging onto another deal or transferring to the lender’s standard variable rate of 5.3%.
The equity loan can be repaid at any time once the build is complete, but it must be completely paid off either by the end of the mortgage term or when the property is sold. After the initial three-year build phase, borrowers must remain on a capital repayment mortgage until the equity loan is repaid.
The amount repayable is based on the property’s value when the equity loan is redeemed, not the amount that was initially borrowed.
Who can apply?
Applications are open to anyone aged 18 or over who have a right to live in England. Those using the scheme must live in the newly-built home as their only home and secure a self build mortgage from a lender registered with Help to Build.
If you’re 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.
The scheme is intended to make self and custom-designed homes an option for those “who don’t have Grand Designs size budgets,” said the government.
Richard Bacon, MP for South Norfolk and author of the review commissioned by the Prime Minister which recommended the Help to Build scheme, added: “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.”