Almas Uddin
Founder and Mortgage Advisor
05 May 2021
Hot on the heels of the 95% mortgage guarantee scheme for residential buyers, the government has launched a brand new initiative to provide similar support for self-build home projects!
This scheme is backed by £150 million of funding. It is called Help to Build, echoing the Help to Buy programme that has helped thousands of buyers get onto the property market - and achieve affordable mortgage borrowing.
In this guide, the Revolution Finance Brokers team explains a little more about the Help to Build scheme, who is eligible, and why it might be a welcome boost to a growing self-build property sector!
Please get in touch if you'd like support with finding a lender offering Help to Build mortgages or to compare the current rates on the market.
What is the Help to Build Initiative?
Over the last year, and indeed going back further, we've seen lots of government schemes.
Some have targeted commercial businesses with low-interest loans, pandemic recovery schemes and support programmes for staff.
Landlords and investors have been able to apply for Green Homes Grants to reduce the costs of energy efficiency projects.
There are also multiple options for first-time buyers or lower-income households.
Examples include the Help to Buy equity loan scheme, Shared Ownership options, and the new 95% guarantee scheme introduced in 2021.
The point of each initiative is always two-fold:
- To support individuals or businesses financially. Many new schemes were introduced in the wake of the Coronavirus pandemic.
- To stimulate the economy, housing market, construction sector or another vital element of the British marketplace.
Now it's the turn of people who aspire to create their own perfect property - and need affordable mortgage borrowing to make that dream a reality.
Similarly to the property purchase equivalent, Help to Build applicants can apply with just a 5% deposit, take out a government equity loan to improve their deposit value, and build a viable property.
Eligibility for Help to Build Equity Loans
As with any government financial support, there are eligibility criteria. It's also vital to remember that a mortgage lender isn't guaranteed to offer Help to Build mortgages.
These two things work independently. You can apply for a Help to Build equity loan with a 5% deposit, thus increasing the deposit value you can put down on a self-build mortgage.
However, you'll need to apply to a mortgage provider offering self-build products and comply with their criteria and policies to secure the borrowing you need.
Therefore, an independent broker remains crucial to ensuring you get the best value self-build mortgage and achieve the maximum benefit from your Help to Build loan.
Let's run through some of the regulations and what sort of projects can apply for the equity loan:
- Properties can be built from scratch or made to order - increasing spending in the SME construction sector to rival the dominance of the big developers.
- The scheme ties into the Plan for Jobs, aiming to boost construction revenue and apprenticeship positions in the trades.
- Additional funding of £2.1 million has been allocated to community developments such as shops, commercial spaces and new residential builds.
The key here is that the loans are intended to drive growth in the self-build sector, and specifically in the construction industry.
Around 30,000 to 40,000 self-build homes are expected to be built each year. That improves quality-housing stock and supports the SME builders who manage one in ten new property constructions.
How Affordable is a Self-Build Project?
Undoubtedly, the Help to Build scheme will make it far more achievable for thousands of people to build their own property. That might be through:
- Developing a home on a plot of land already owned.
- Knocking down a dilapidated structure and building a new property.
- Buying a site with planning permission and starting a 'from scratch' build.
In a nutshell, the government will own a proportion of your new-build property, although we anticipate this having an equivalent five-year interest free period as with the Help to Buy project.
After the first five years, you can choose to repay the equity loan or refinance the borrowing to ensure you don't start to incur interest charges and regain 100% ownership of the home.
It seems likely that this initiative will have a good response - there are 55,000 people signed up with local authority Right to Build registers, so the appetite is there.
However, it's also worth being conscious of the other costs included in a self-build project before making any long-term decisions about mortgage financing. For example:
- Self-build is a general term and applies to individual building projects you expect to carry out yourself or where a homeowner contracts a builder to conduct the work on their behalf.
- Building regulations and planning permission rules still apply and must be considered in initial budgets.
- Some mortgage lenders will not offer a self-build mortgage without a minimum experience in construction or with evidence that your contractor has the required skills, so the scheme isn't necessarily a way for individuals to finance an independent build project.
Applying for a Help to Build Self-Build Mortgage
Traditionally, self-build has been seen as a higher risk prospect for lenders, given that each project is unique.
The bespoke nature of the valuation process and releasing funding in tranches (similar to development funding) also mean that mainstream banks are often reluctant to offer self-build mortgages beneath a specific value.
It is common for a flurry of applications to be submitted whenever a new initiative launches, but it's essential to remember that lenders will also need to consider:
- Total build budgets and anticipated property valuations.
- Existing debts and debt to income ratios.
- Credit scoring, age, employment and other affordability factors.
However, working with an experienced, whole-of-market broker remains the optimal way to ensure you find the borrowing you need and have a firm grasp of all the variables involved in your self-build project.
The best way to secure competitive self-build lending is to ensure you have detailed plans, accurate budgets and build in a contingency to ensure the lender reviews the application in a positive light.
To help structure your self-build mortgage application and identify the suitable lenders to apply to through the Help to Build equity loan scheme, please contact the Revolution Brokers team.
Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.
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