The scheme is aimed at families and younger buyers
The government launched the Help to Build scheme at the back end of last month, with it designed to provide an alternative method to assisting the housing crisis in the UK.
Aimed at families and younger buyers, the scheme allows for low-deposit mortgages through equity loans on self- and custom-build homes similar to the Help to Buy scheme, which is due to end in March 2023.
The repayment vehicle for the scheme means the sum homeowners repay is linked to the value of their home at the time of the sale, not the amount they borrowed.
“It is a rather romantic notion of many to build their own house. The adage might be true that an Englishman’s home is his castle, but do they know how to build, source the land, negotiate build cost and deal with cost variations,” questioned David Alcock (pictured), managing director at Blend Network.
He explained that while the scheme allows for people to create the home they want for up to £600,000 with a 5% deposit and a five year interest-free government Help to Build loan, it is complex.
Alcock added that the other 95% comes through a Help to Build mortgage, which can only be provided by lenders approved by Homes England, which runs the scheme.
“While some might have the time and energy to undertake such a task, and clearly the scheme will help those that do, it will not help the vast majority of people seeking to get on the ladder,” he said.
According to Alcock, designing and building one’s home is a massive undertaking and he explained that many who have experience in the industry would still struggle with the build. The fact that it is aimed at families and younger people is all the more complex, he suggested, as they will likely have less time to design and complete the project.
Read more: Will the Help to Build scheme solve the UK housing crisis?
He explained that the mortgages do at least offer advance stage payments, which means borrowers would receive funds before each stage of the project, therefore removing the risk of receiving less than expected due to an interim valuation.
Despite the average price of fixed rate mortgages increasing to over 3%, representing a seven-year high, according to Moneyfacts, rates under the Help to Build scheme are largely over 5%. Darlington Building Society was the first lender to join the scheme, with mortgage rates fixed at 5.39%, or 5.99% for three years.
Read more: 5% interest rates – are they coming soon?
Looking wider at the construction of new properties, Alcock said the number of new-build homes registered to be constructed across the UK fell by 23% annually in 2020 to reach an eight-year low.
“While we welcome the government’s Help to Build scheme, which will fund equity loans for people in England wishing to build their own homes, the scheme does not even get close to solving the UK’s worst housing crisis in generations,” Alcock said.
“Some 123,151 new homes were registered in 2020, compared with 160,319 in 2019, according to the National House Building Council.”
He explained that these figures are far below the government’s target of building 300,000 new homes per year, and he outlined that the new Help to Build scheme, which is backed by £140 million in government funding, is just not sufficient.
Turning to solutions for the housing crisis, Alcock said that Blend Network strongly believe that the government must bring specialist lenders into the fold if it serious about tackling the issue.He believes borrowers will need to look to alternative lending options.
“With the nimble size, agile structure and flexible source of funding, specialist lenders have demonstrated they have the funding and commitment needed to deploy the capital required to build more homes and support SME housebuilders,” he concluded.
