Help to Build: Equity Loan Scheme

Why build your own home?

Building your own home or commissioning someone to build it on your behalf is a choice that’s becoming increasingly popular with prospective homeowners. It gives you the freedom to decide exactly how you want your home to be built, including the size, features, internal and external design as well as the location.

• Layout: You can customise your home’s internal spaces to suit any specific needs you have. For example, to cater to a disability, to make life easier for an elderly relative or to create the right environment when working from home. You may prefer to have several rooms to suit different purposes or would rather have a more open-plan layout.
• Design: You can choose which features you want your home to have from the outset. For example, it can incorporate smart technology and be energy efficient.
• Location: You can build your home in your preferred location, either on a plot of land you already own or on a serviced plot. For details of the available serviced plots in the area you wish to build your home, contact the local authority.

What is Help to Build?

Available in England, Help to Build is an equity loan provided by the government. It’s available to help with the funding of your project, whether you’re looking to self-build, custom-build or shell-build your home. The equity loan ranges between 5% and 20% of the total estimated costs. An equity loan of up to 40% is provided in London.

As a low-deposit mortgage scheme, you only need a 5% deposit based on the estimated land and build costs. You also need to secure a self-build mortgage via a lender registered with the scheme. You’ll benefit from full ownership of your home despite using the equity loan, which is provided by Homes England.

The aim of this government Help to Build scheme is to make self-building more affordable, enabling more people to get on the property ladder. It also aims to considerably increase the number of new homes created as well as to provide more opportunities for small building companies.

How does the Help to Build: Equity Loan scheme work?

As mentioned above, you can borrow an equity loan of between 5% and 20% of the estimated costs to buy the plot of land, if needed, and to build your home. If you’re building your home in London, you can apply for an equity loan of up to 40%. A maximum spend of £600,000 on your new home applies. This must include the cost of buying the land if you don’t already own a plot. No more than £400,000 can be spent on the build.

Your deposit and self-build mortgage

You have to provide a deposit of at least 5% of the estimated costs of the land and build. You must also have a mortgage offer in place to be approved for an equity loan. To begin your project, a 95% self-build mortgage must be secured from one of the registered Help to Build lenders. This self-build mortgage is what you will use to buy the land and build your home. The lender will release the funds to you in stages throughout your self-build project. This will continue until you have finished building your home. During this time, the lender will make regular checks on your build progress, ensuring that you’re keeping on track with your budget and schedule.

Once your home has been built, which must be within 3 years of receiving your formal equity loan offer, the equity loan will be paid to your lender. This reduces the amount you need to borrow for your repayment mortgage, which you’ll switch to once the lender has carried out their checks.

Switching to a repayment mortgage

Once your home has been built and the lender has carried out any necessary checks, your self-build mortgage will automatically be switched to a repayment one. The term of your equity loan will begin at the same time as that of your repayment mortgage. Your repayment mortgage has to remain in place until the equity loan has been repaid in full. As repayment mortgages tend to have a long term, such as 25 years, this means your equity loan will also run for a long term. We’ll explain how the loan can be repaid later on in this guide.

Get expert help with your self-build mortgage and equity loan applications

Speak with our mortgage brokers when you’re ready to get started with your self-build or custom-build project. Located throughout Kent and London, they can check your Help to Build scheme eligibility and ensure that you have the right information to hand before submitting your equity loan application. They can also search for the most competitive self-build mortgage rates available from the registered Help to Build mortgage lenders. Just give us a call on 01322 907 000 to begin the mortgage application process. If you prefer, send us an email at info@trinityfinance.co.uk or an enquiry via our contact form. One of our self-build mortgage brokers will reply to you as quickly as possible.

What can you use the Help to Build equity loan for?

The good news for anyone wishing to design their own home is that there’s no need to be a builder or have any building experience to take advantage of this scheme. There are three options to choose from, each of which has different levels of involvement to suit your preferences. You can use the Help to Build loan for a self-build, custom-build or shell-build project.

• A self-build home: With this option, you’re involved with every aspect of the building project. This includes buying the plot of land for your home to be built on, finding the building materials and working closely with architects, project managers, builders, plumbers and electricians.
• A custom-build home: This is a more hands-off option where you liaise with a developer or professional builder who oversees the project. You need to work with them on the design specifications, such as the interior layout, any particular requirements for each room and the size of the garden, for example.
• A shell-build home: As the name implies, you begin with the shell of a property. There are two options for this. You can pay for someone to build the external property structure, including the walls, foundations and roof. Alternatively, you can buy the shell of a property, which already includes these features. This then allows you to deal with the design and creation of the internal layout and features, including where internal walls are to be built, installing the electrics, handling the plumbing and laying the flooring.

Using the Help to Build equity loan

Your Help to Build equity loan can be used to:

• Buy the plot of land that your home is to be built on
• Build your new home
• Alter a shell-build to create your home
• Convert the use of a commercial property into your home
• Demolish a property and build your home in its place
• Build your home in the unused space located above an existing building. This is called an airspace development.

You cannot use your equity loan to:

• Upgrade your current home
• Build more than one home
• Build a second home. The home you build with this loan must be your only residence. If you own another home or plot of land, this must be sold within 12 months of the date your new home is built.

How much can you borrow via the Help to Build: Equity Loan scheme?

As mentioned earlier, you can spend up to £600,000, depending on your eligibility. This must include buying the land, if needed, and up to £400,000 on the costs to build your home. The amount you can borrow is based on the total estimated costs as well as the equity loan percentage that you’re eligible for.

For example, the total estimated costs of your self-build project are £400,000. This includes £150,000 to buy the plot of land and £250,000 to build your home. You’re eligible to receive a 20% equity loan, which means you can borrow £80,000 via the Help to Build government scheme. If you’re eligible for the full equity loan percentage of 40% when building your home within London, however, this means you can borrow £160,000 via the scheme.

Examples of during and after the build

Your self-build project has a total estimated cost of £400,000. You have to pay a 5% deposit of £20,000. To begin the project, you need to arrange a self-build mortgage to fund the remaining £380,000. Once you’ve built your home, the agreed equity loan (using the figures above) will be given to the lender. This lowers the amount you need to borrow for your repayment mortgage compared with the initial self-build mortgage, as detailed below.

• When your new home is outside of London: The 20% equity loan of £80,000 is added to your £20,000 deposit, totalling £100,000. This reduces the amount you need to borrow with a repayment mortgage to £300,000.
• When your new home is in London: The 40% equity loan of £160,000 is added to your £20,000 deposit, totalling £180,000. This reduces the amount you need to borrow with a repayment mortgage to £220,000.

Eligibility criteria for the Help to Build scheme

You can apply for Help to Build on your own or with up to three other people. To be eligible for the scheme, you (and any other applicants you’re applying with) need to meet the following criteria:

• You must be at least 18 years old
• You have a right to live in England
• The planned self-build or custom-build home will be used as your only home
• You can pay a 5% deposit
• You’re able to secure a self-build mortgage via a lender registered with the scheme
• You have gained outline planning permission for the plot of land (most lenders insist on this before they approve self-build mortgages)

You cannot apply for a loan if:

• You’ve received funding from the Help to Build: Equity Loan scheme in the last 2 years
• You owe money that’s been borrowed via a different government scheme for home ownership

Another point to bear in mind is the need for a contingency fund. Self-build projects often go over budget and this fund can pay for any unexpected costs you may incur. This mustn’t be included in the total estimated costs that you submit for your equity loan application. Your mortgage lender may insist that you set a sum aside for a contingency fund.

How do you apply for Help to Build?

You need to gather some information together for your Help to Build application. This includes details about yourself, your income, your self-build mortgage, your legal adviser, the land and the new home you’re going to build.

• Yourself: You need to provide the addresses you’ve lived at for the last 3 years as well as details of any monthly benefits you receive and any outstanding debts owed.
• Your income: This must include all types of income received, such as your annual salary, overtime, commission, bonuses, investments or pensions.
• Your mortgage. You need to provide proof that you’ve been offered one and details about the amount you can borrow, the mortgage term, your lender or mortgage broker and the deposit you’re paying.
• Your conveyancing solicitor or licensed conveyancer. You need their name, company name, business address, telephone number and email address.
• The land and your new home: You need details about the type of project you’re undertaking, the extent of your involvement in it, the estimated land and building costs, the location of the plot, the type of property you’re building, the number of bedrooms it will have and whether it will be freehold, leasehold or commonhold. For a leasehold or commonhold property, you need to provide details of the monthly service charge. You also need to give the planned start and finish dates for the building works and the local authority’s details.

Your application

When you have all of the information, you can apply for Help to Build either online or by post. To apply by post, use an application form obtained from Homes England. Homes England can be contacted on 01158 526 934 for this.

Once your application has been checked by Homes England, you’ll be notified as to whether or not you’ve been approved for an equity loan. If you have and still wish to proceed, you can accept the offer and begin building your home.

Interest and fees payable for Help to Build

Interest

Interest is charged on your equity loan although you benefit from having the first 5 years interest-free. Interest is payable from year 6 and continues until your equity loan has been repaid in full. In year 6, an interest rate of 1.75% is payable on the equity loan amount. The yearly interest fee is divided into 12 so that you pay the interest in monthly instalments. For example, when receiving an equity loan of £80,000, 1.75% of this will be charged in year 6, which is £1,400. When divided by 12, the amount payable each month is £116.67. From year 7, the interest payable will increase each year in line with the consumer price index (CPI) plus an additional 2%.

Fees

A £1 monthly management fee is payable from the time that the equity loan is transferred to your lender by Homes England. This monthly fee will continue until you have completely repaid your equity loan.

If you make any changes to your equity loan, you’ll be charged an administration fee. You may decide to make a part payment, for example. If you make a late payment, interest may be charged on the overdue amount. Should action need to be taken against you to recoup overdue payments, additional costs will be charged.

Repaying your Help to Build equity loan

Your equity loan usually runs for the same term as your mortgage, such as 25 years. You don’t have to repay any of your loan until it actually ends. There are different ways that your loan can end:

• The loan term, such as 25 years, comes to an end
• You repay your mortgage in full
• You sell your home
• You’re ordered to repay your equity loan in full for breaking the terms of the contract

The repayment value

Your equity loan can be repaid in full or in part at any point during the loan term. The amount to be repaid is calculated as a percentage of the market value of your home and the land it’s been built on at the time you wish to make a repayment. It’s important to note that this is regardless of whether you already owned the land or included it in your equity loan calculations. Whether you want to repay in full or part, a valuation will be carried out by a surveyor from the Royal Institution of Chartered Surveyors (RICS). You will be liable for the valuation fee and you’ll also need to pay an administration fee.

As your home’s market value can increase or decrease, so too can the amount you need to repay for your Help to Build loan. The percentage of the equity loan amount you received will stay the same, such as 20%. But this percentage will be calculated on the market value of your home at the point of repayment, either increasing or decreasing the value of the government’s equity share as a result. For example, you originally received a 20% equity loan based on total estimated costs of £400,000, totalling £80,000. However, the market value of your home has increased since then. When you want to repay your loan, this will be at 20% of the higher value. Therefore, the repayment value will be higher than the original £80,000 you borrowed.

Part payments

Part payments can be made at any time and they must be for at least 10% of your home’s market value. Any part payment you make cannot reduce the outstanding loan amount to below 5% of your home’s market value. The reason for this is that the final payment must be for at least 5% of the market value of your home.

The final payment

When you either repay your mortgage, the loan term ends or you sell your home, you must fully repay your equity loan. The final amount to be repaid will be determined by the market value of your home and land as well as any part payments you’ve previously made. If you sell your home and the sale price is higher than the market value, this will be what the repayment value is based on.

Use Help to Build to boost your self-build finance

Get in touch with us on 01322 907 000 to begin your self-build journey. Our mortgage brokers in Kent and London are ready to provide you with expert help and guidance. They can search for the best self-build mortgage deals available, including flexible terms and competitive rates. They can also ensure that you have the correct information prepared for your Help to Build: Equity Loan scheme application.

At Trinity Finance, we have firsthand experience with Kent and London self-build projects. This puts us in an exceptional position when advising on the various aspects of self-build finance. If you’re unable to call us on the number above, just send us an email at info@trinityfinance.co.uk or an enquiry via our contact form. One of our self-build mortgage brokers will reply to you as quickly as possible with more information.