A Help to Build – for Self Builders
Help to Build is a proposed equity release scheme, with the details yet to be finalised
NaCSBA is working to create a Help to Build Equity Loan Scheme to address the imbalance in the construction sector created by the Help to Buy scheme, which Custom and Self Builders are unable to access.
Currently, Help to Build is a proposal, and does not exist as a live scheme that people can use to borrow money.
The Help to Buy Equity Loan scheme (and its variants in Scotland and Wales) has helped to boost the supply of new build homes in recent years. The scheme has operated for longer and at a far greater scale than originally expected. Yet it also contains a fundamental flaw in its design that means that it is not available to those seeking to commission or build their own home. Whilst this flaw has long been recognised, change is yet to be delivered.
The current Help to Buy Equity Loan requires the equity loan to be paid on legal completion to the developer. This approach means that the scheme cannot be readily used for Custom and Self Build which typically has multiple payments to different parties. As with the speculative new build market, without this scheme access to low deposit loans is limited, with customers typically needing to provide a 20% deposit.
NaCSBA continues to make the case for an Equity Loan for the sector to end the current unfair advantage help by the speculative new build market.
NaCSBA (supported by BuildStore and Graven Hill) working with 12 lenders active in the market, has developed a workable variation of the scheme – Help to Build. This scheme not only helps those looking to build or commission their own home it also, unlike Help to Buy, helps SME builders with cash flows during the build.
Right to Build Portal
Find out more about the Right to Build, or find your local registers at the Right to Build Portal.
How a Help to Build could work
Although a Help to Build scheme has been announced, currently there is little detail about what it might look like.
However, in 2019, NaCSBA put forward a proposal that a Help to Build would be an Equity Loan scheme, designed to mirror the existing Help to Buy Equity Loan scheme, except where changes are required by the nature of the sector. In this scenario, the key change is the loan would be paid to the mortgage lender on practical completion of the self build rather than to the builder on the legal completion of the sale of the new build.
With such a scheme in place, the mortgage lender will provide funding for up to 95% of the costs of the build. This will enable the self builder to proceed with just a 5% deposit (as with Help to Buy). Then, in line with Help to Buy, when the build is completed the Government provide 20% of the cost of the property. With Help to Build the payment is to the lender as it is they (and not the builder) who has financed the build.
Once the home is complete the position under both Help to Buy and Help to Build is:
- The homeowner has funded 5% of the cost
- The mortgage lender has outstanding finance of 75% of the cost
- The Government has a funded 20% of the cost
Help to Build has further benefits. A self build home is typically worth more than the cost of the build, whereas a speculatively built home typically falls in value therefore the risk of the scheme is reduced.
Furthermore, a self-build mortgage by provides finance throughout the build and in doing so reduces the need for more expensive funding for builders (in particular SMEs, local crafts and suppliers).
NaCSBA will be sharing details about the final scheme, as soon as it knows more.
Campaigning for change
NaCSBA is campaigning for a Help to Build Equity Loan scheme to match the lifespan of Help to Buy. Such a scheme, operating over an extended period would create the platform for a step change is the sector. It would encourage landowners to bring forward land, and suppliers and builders to invest in the sector.
It would ensure the delivery of more and better homes that more people aspire to live in and that communities are happier to see built. It would help move the UK off the bottom of the world league for the number of self build homes that are built.
It is consistent with Government housing policy. The Housing White Paper states:
“The way in which the house-building market operates constrains the supply of new homes because there is insufficient competition and innovation. We want to diversify the market to achieve the amount of quality and choice of housing that people want. We will support custom-build homes with greater access to land and finance, giving people more choice over the design of their home.”