The government has launched its new ‘Help to Build’ equity loan program, designed to help home builders in England access low deposit mortgage finance.
Full details of the program, which will be managed by Homes England, have been released by the Department for Housing, Communities and Local Government. The outlines of the device were initially proposed last April.
The structure of these loans will be similar to that of the popular “Purchase Assistance” program. It is open to self-builders, who manage the project themselves, and to “custom construction projects, where the home buyer works with a professional builder.”
To qualify for a Construction Assistance loan, borrowers will only need a 5% deposit. The government will then offer an equity loan that can represent between 5 and 20 percent of the total estimated cost – and up to 40 percent for construction in London. The remaining cost of the project is covered by a self-construction mortgage.
No interest payment is taken on the equity portion of the loan during the first five years. Normal interest charges apply to the self-build commercial mortgage.
This construction assistance loan will cover projects up to £ 600,000. This will include the cost of the land if the builders don’t already own it. The maximum amount of construction costs is £ 400,000.
Those who have secured a home equity construction assistance loan from a government will have three years to purchase the land and build the house.
Government information indicates that the amount of this equity loan will be based on the estimated costs of buying land and building a house there, the amount borrowers pay back – either at the end of the mortgage term or sooner if the home is sold, or they decide to remortgage – is calculated as a percentage of the market value of their home at that time.
The first interest payment will be 1.75% of the equity loan amount you borrowed (which is the equity loan percentage of the estimated land and construction costs).
Interest will increase each year in April according to the Consumer Price Index (CPI), increased by 2%. If the CPI falls below zero, the interest rate will rise by 2%.
The program has been well received by specialist mortgage providers who say it will provide a “big boost” to the self-build and custom-build industry. It was emphasized that government funds of £ 150million have been allocated to the program over the next four years.
BuildLoan says it has worked closely with Homes England over the past few years to help get this project up and running.
He adds that, like Help to Buy, brokers will have an important role to play in raising awareness of the system and in disseminating lenders’ products.
BuildLoan CEO Raymond Connor said: “The fact that people only need to find a 5% deposit using this program, instead of 20-25% without it, is an extremely attractive proposition. .
“Brokers should familiarize themselves with the Construction Assistance Loan program as I can guarantee there will be a lot of interest from people wanting to build their own homes.
“BuildLoan will work with our lending partners to develop products to support the Equity Creation Assistance Loan program and ensure that we are ready to lend as soon as we get the green light. “
Applications for the program will open this winter. The government has said it hopes this will encourage the construction of more homes and more homes that meet the needs of buyers in terms of location, size scale or energy efficiency.
The Darlington Building Society has confirmed that it will be one of the first lenders to offer a Help to Build mortgage in conjunction with BuildLoan. Managing Director Andrew Craddock said: “Building enough housing to meet growing demand remains a major challenge for our country and Darlington BS is considering the introduction of Help to build as an important step towards supporting the delivery of self-built and personalized housing on a large scale.
“We believe this initiative supports the green agenda by opening up greater opportunities to build high-quality, well-designed and energy-efficient homes, thus making a valuable contribution to net zero housing ambitions.