The government has launched a new Help to Build scheme that it hopes will get more people onto the housing ladder by allowing them to build their own homes more affordably.
The initiative will work in a similar way to the current Help to Buy scheme.
Help to Buy scheme 2021 – 2023
Under the current version of the Help to Buy scheme, the government lends buyers up to 20% (or 40% in London) of the cost of a new build home.
You will have to provide at least 5% of the deposit, with a mortgage of 25% or more making up the rest.
The equity loan is interest free for the first five years, which means if you manage to pay it off in that time, you would only have to pay the management fee of £1 a month during the entire period – or £60.
After the five years, the payments can get very expensive very quickly – the interest rate starts from 1.75% and increases by Consumer Prices Index including owner occupiers’ housing costs (CPIH) rate plus 2% every April – so it’s worth paying it off as quickly as you can. Not forgetting of course that you’d still have to make your usual mortgage payments.
The Help to Build scheme
The government said in its announcement: “The ‘Help to Build’ scheme will ensure that self and custom home building can become a realistic option to get onto the housing ladder through lower deposit mortgages.
“Lowering the required deposit will free up capital, so people can build the home that they want and need whether it’s a commissioned, made to order home, or a new design from scratch. The scheme will provide an equity loan on the completed home, similar to the Help to Buy scheme.”
To that end, it has pledged over £150 million towards the scheme – the money is coming from the government’s Plan for Jobs pot as it thinks the scheme will benefit SME builders the most – which could in turn help build 30,000 to 40,000 new homes.
What it means for you…
It’s not clear at the moment whether the Help to Build scheme will follow the exact same format as Help to Buy – details of the scheme, including how to apply, won’t be made available until the summer – but if you are interested in using the scheme it’s worth looking at the fine print once it’s available.
There was an article in The Times last weekend that highlighted some of the pitfalls of the Help to Buy scheme, many of which were impossible to predict when people first signed up for the scheme.
Issues included difficulties remortgaging their property due to drawn out bureaucracy and unexpected exit fees.
And as many of the homes involved were new build apartments, homeowners also experienced issues with poor construction, rising service charges and problems that have arisen as a result of the cladding scandal.
When you are building a home from scratch, there are even more things to consider, like what happens if you go over budget, or if the builders you hired just aren’t doing a very good job.
For uncertainties such as these, you’ll have to ensure that your budget has some stretch, although you may also be able to take out insurance in some cases.
There are also limitations on where you can build your own home, which means the locations available may not always be ideal. For example, if you want to be near shops or schools, or away from the main road.
If you think you might want to build your own home one day, the National Association of Custom and Self Build’s (NaCSBA) Self Build Portal is a good place to start.
From there, you can register your interest for plots with your local council and find advice on how to get started.