There’s good news for those who have always wanted to build their own home but couldn’t afford a mortgage! On 24 April, Housing Secretary Robert Jenrick announced the Help to Build scheme. The government pledged a £150 million fund to make it easier and more affordable for people to build their own homes. Here’s what you need to know.
Before we continue, it is important to note that Help to Build is currently a proposal. It doesn’t exist as a live scheme yet.
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What is the Help to Build scheme?
The National Custom and Self Build Association (NaCSBA), with support from Graven Hill, BuildStore and 12 lenders active in the market, proposed the Help to Build scheme. It aims to help self-builders who are unable to access the Help to Buy: Equity Loan scheme.
The Help to Build scheme also aims to make self and custom home building a realistic option to get onto the housing ladder through 5% deposit mortgages.
According to Andrew Baddeley-Chappell, CEO of NaCSBA, custom and self-building is about homeowners having control over the design and specifications of their home. It enables homeowners to create the home they want rather than what someone else believes they would like.
The scheme might help people build homes to better suit needs such as working from home or caring for relatives.
Housing Secretary Robert Jenrick commented: “Building your own home shouldn’t be the preserve of a small number of people, but a mainstream, realistic and affordable option for people across the country. That’s why we are making it easier and more affordable – backed by over £150 million new funding from the government.”
What could the Help to Build scheme look like?
NaCSBA outlines that a mortgage lender will be required to provide funding for up to 95% of the costs of the build. Similar to Help to Buy, the self-builder will proceed with a 5% deposit. Additionally, when the build is completed, the government, through the Help to Build scheme, will provide 20% of the cost of the property.
Payment will be made to the lender as they (and not the builder) have financed the build.
In a nutshell, once the build is complete, the position of the homeowner, mortgage lender and government will be:
- The homeowner will have funded 5% of the cost
- The mortgage lender will have outstanding finance of 75% of the cost
- The government will have funded 20% of the cost
How is Help to Build Different From Help to Buy?
According to NaCSBA’s review of the Help to Build scheme, it’s evident that there are many similarities. However, there’s a significant flaw in the Help to Buy design. The flaw limits those seeking to commission or build their own home.
The current Help to Buy scheme is designed to pay the developer (seller) an equity loan on legal completion. Custom and self-build might involve multiple payments to different parties.
The Help to Buy scheme doesn’t pay lenders; instead, it pays developers. NaCSBA proposes that the government pay the Help to Build equity loan to the mortgage lender upon the practical completion of the self build.