Help to Build Mortgage Advice

While the government’s Help to Buy programme has been helping first-time buyers in England get on the property ladder for some time now, those with self-build dreams had to wait until the launch of the new Help to Build equity loan scheme in June 2022.

If you’re looking to build your own home but haven’t thought you’d be able to afford the high initial costs, then Help to Build could be just what you need. In this article, we’ll look at exactly how the scheme works and the steps you need to take to secure a Help to Build mortgage.

What is a Help to Build mortgage, and how does it work?

The Help to Build equity loan is a government scheme similar to the Help to Buy scheme, which is now closed. It allows you to borrow an amount from the government to top up your deposit and make it easier to secure a mortgage.

Most self-build mortgages normally require a deposit of around 75%, which makes the cost prohibitive for many self-builders. With the Help to Build scheme, you can apply for a mortgage with as little as a 5% deposit and fund the difference through the loan.

You don’t make regular repayments on the Help to Build loan capital. You just pay interest. The loan is repayable in full when you end your equity loan term, sell your home or pay off your repayment mortgage. See ‘things to consider’ below for more details on how repayment works.

There isn’t a specific product called a ‘Help to Build mortgage’ as part of the scheme, but you need to get a self-build mortgage through one of the specific lenders registered with the scheme.

How much can you borrow?

You can borrow between 5% and 20% of the estimated property value or up to 40% if you live in London. The total build cost is also capped – if you already own the land and are just borrowing for the build, then the cap is £400,000. If the land is included in your costs, it can be up to £600,000.

Eligibility criteria for the scheme

The Help to Build scheme only has a few basic criteria, so as long as you meet these and don’t already owe money on another government home ownership scheme, it’s worth exploring further.

• You will need a minimum 5% deposit based on estimated costs
• You must be over 18 and be legally able to live in England
• The home you’re building must be your only residence once it is complete
• You must get a self-build mortgage with a lender registered with the Help to Build scheme

There will, of course, be separate eligibility and affordability criteria for securing the self-build mortgage – being eligible for the equity loan doesn’t guarantee that you will be accepted for a mortgage, and that will depend on your broader financial circumstances and the decision of your lender.

How to get a Help to Build mortgage

Once you’ve met the Help to Build eligibility criteria, there are key steps to take to get yourself ready to apply. First, get in touch with a self-build mortgage broker – they will give you valuable knowledge as an expert in this area of home finance.

Only lenders registered with the Help to Build scheme are eligible to provide your mortgage, and your broker will already know who they are.

They’ll also be able to assist with:

• Help you decide exactly how much you should borrow and provide estimates of what your borrowing is likely to cost over the long term
• Getting your building plans and costs in order. Homes England has also produced a full guide to help you understand exactly how it works and what information you’ll need to provide with your application.
• Download your credit file. It is vital to have a clear picture of your financial history before you apply. If you go in blind and end up being declined for a mortgage, it can be harder to get accepted on your second attempt.

Make a quick online enquiry now, and we can arrange a free, no-obligation chat with one of the self-build mortgage specialists we work with.

Which lenders are offering them?

Just like the Help to Buy scheme, Help to Build only had one registered lender at launch – Darlington Building Society. With Darlington you can currently choose between two three-year discount Help to Build mortgages, with rates of 5.39% and 5.99%.

More lenders are registering with Help to Build, and your broker will be updated with new providers and their products as they are added.

They will also be able to recommend alternatives to the scheme and compare them with the Help to Build route to help you make an informed decision about the best option for you.

Things to consider

Before you take out a Help to Build equity loan, it’s important to understand exactly how they work and the costs involved.

A broker can help with this, but there are a few key points worth noting:

• There are no interest charges for the first five years – interest becomes payable from year six at a rate of 1.75%, but then the rate of interest increases annually. You will also pay a monthly £1 admin fee from when your equity loan starts.
• When it comes to working out how much you need to repay, the amount owed is calculated as a percentage of the market value of your home at the time. This means that if the value of your home has increased, the amount you owe will also have increased.
• This market valuation includes the value of the land, even if you already owned the land and this was not part of the original loan, so be aware that this could significantly increase the amount you owe.
• As well as the completed build being your only residence, you or anyone you live with cannot have any interest in any other residential land or property in the UK or abroad. You’ll have one year from finishing your new home to sell other land or property. This also applies to a partner you live with, even if you apply for the loan independently.

Can you use the Help to Buy scheme as an alternative?

While the older Help to Buy equity loan scheme is very similar to Help to Build, it isn’t a viable alternative.

To be eligible for the Help to Buy scheme, you need to buy a new-build property. Upon completion, the whole government loan is paid directly to a single developer.

Get matched with a self-build mortgage specialist

While the Help to Build scheme will definitely make it easier for a lot of people to get on the property ladder, it won’t suit everyone, so it’s vital that you talk to a specialist broker before you apply. They’ll be able to advise you on whether it’s a good fit for you and research the handful of specific lenders registered to provide self-build mortgages as part of the scheme to find the best fit.

Give us a quick call now on 0330 818 7026 or complete our short online form and we’ll quickly look at your circumstances and arrange for you to speak to a broker who we think best suits your needs. All of the self-build mortgage brokers we work with have been pre-vetted by us, and your chat will be completely free and with no obligation.