Consumers wanting to build their own home can now apply for an equity loan of up to 40% under the Government’s help to build scheme.
The scheme, which is set to accept applications this winter, is aimed at making it more affordable for consumers in England to build their own home.
It enables potential home builders to borrow between 5% to 20%, or up to 40% for those based in London, of the estimated costs to buy a plot of land and build the home, as an equity loan from the Government.
The loan will be interest-free for the first five years, but borrowers will start paying interest from year six. On year six interest will be added at a fixed rate of 1.75%. From year seven onwards, the previous year’s interest rate will increase by 2% plus either the Consumer Price Index (CPI) rate or a minimum of 2% if the CPI is zero or less.
Along with repaying the loan and interest, borrowers will be charged a £1 monthly management fee for the life of the loan.
Borrowers will have to repay the loan at the end of the term, which is normally 25 years, or when they sell the home or pay off the mortgage. Alternatively, the loan can be repaid any time before then.
Along with the equity loan, consumers will need a 5% deposit and secure a self-build mortgage for the remaining balance of up to 25%.
Under the scheme, up to £600,000 can be spend on building the new home. This must include the cost of the land, if not already purchased, and no more than £400,000 on the cost to build it.
In order to apply for a help to build loan, consumers must:
- Be 18 years of age or over and have a right to live in England
- Will live in the newly-built home as their only home
- Secure a self-build mortgage from a lender registered with Help to Build.
Once the help to build loan has been approved, consumers have up to three years to buy the land and build their home.
The process for applying for the scheme is:
- Secure a self-build mortgage, from a lender registered for help to build or through a broker.
- Apply for help to build through Homes England
- Successful applications will receive an equity loan offer based on the estimated cost to buy a plot of land and build the home
- When the home is built, Homes England will pay the equity loan to the registered lender.
