The Government has launched a number of initiatives on home ownership over the last few years. The latest one is Help To Build which has been launched this week. Here we will look at Help to Build and what it might mean for the property market.
What is Help to Build?
Help to Build is an equity loan scheme along similar lines to Help to Buy but for self build homes. It is designed to help self builders, as well as custom builders, build their own home with just a 5% deposit.
The Government is providing £150 million of funding for the scheme which will run for up to four years. They say that ‘thousands of people in England will be supported onto the property ladder and given the opportunity to build their own home’. However there is no actual number of homes it will help build.
The loan is provided through the Homes and Communities Agency (trading as Homes England). It is a Government agency funded by the Department for Levelling Up, Housing and Communities.
How does Help to Build work?
Applicants for the Help to Build scheme must be planning to build a property and then live in it themselves.
Applicants need to have outline planning permission for the land they want to build on before they can apply for Help to Build.
They must be able to secure a self build mortgage from a lender registered with Help to Build, meet the usual affordability checks, and have at least 5% deposit.
They can borrow between 5% and 20% of their total costs, or 40% in London. Total build costs must not be over £600,000 or £400,000 if the land is already owned by them.
The amount borrowed is an equity loan secured against the property in the same way as a regular mortgage. The equity loan is paid to the lender when the build is complete to help reduce the repayment mortgage needed. The loan is interest free for the first five years. When it is repaid, the repayment is based on any increased (or decreased) value in the property.
Help to Build can also be used for commercial to residential conversions and airspace (eg. rooftop) developments.
Next let’s look at a few of the pros and cons of self building:
* Self building means a homeowner can get the house they really want. Something that they are unlikely to find ready made. So, for example, if you want a high end ‘Grand Designs’ type house, an eco-themed house, a live-work home or a house to accommodate your extended family then self building can be a way to get it.
* It can be much cheaper. Especially if the self builder does the project management and a lot of the work themselves. You can get a much better house than you could otherwise afford. Or you could even self build, live in the property for a while, then sell later and make some money.
Estimates suggest self building can be 20-40% cheaper than buying a ready made property.
* It can be really difficult to find plots that are suitable for self build. And where they are available they aren’t necessarily cheap. In areas with high house prices any self build plots that are available will probably be expensive too.
* Building your own house involves a lot of work. If the self builder does some of the actual building work it can take even longer too. It’s not easy to find builders and other trades to work on self build projects either.
Self build homes can take a lot of time – sometimes several years to complete.
* Financing self build can be difficult. While you can usually mortgage a self build home in the normal way once it’s completed it can be difficult to borrow the money up until that point. A self builder needs finance to buy the land, cover professional fees and taxes, buy materials and pay wages etc.
It is this aspect of self building that Help to Build is probably designed to help with.
So what difference will Help to Build make to the property market?
It’s important to bear in mind that the self build market has always been a very small part of the property market – only about 13,000 homes a year in recent years – and probably always will be. There are not many people who are actually interested in, willing and able to build their own house. There are many more hurdles to self building other than just raising the money for it.
Help to Build has been launched in a fanfare of publicity which makes it sound like a major scheme. But it won’t be anything like as big as Help to Buy. It may be of use to some people who are keen on self building anyway, but who just lack that bit of funding to make it happen. However, the appeal of self build is small – as is the amount of funding committed to this scheme. So it probably won’t make all that much difference to overall housing supply or the housing market.
More details about Help to Build are available from the official site here:
Own Your Home | Help to Build Scheme - Own Your Home