Guidance

Help to Build: Equity Loan customer guide - accessible version

Updated 27 June 2022

Applies to England

With the government’s Help to Build: Equity Loan scheme, building a home of your own or hiring someone to build one for you, could become a reality.

This guide will help you to understand how the equity loan works and what’s involved when you borrow one.

You should read the guide in full before you apply for Help to Build.

This guide is for information only and you must not consider it as advice. Consider getting independent financial advice about whether Help to Build is right for you.

Who provides the equity loan?

Homes and Communities Agency (trading as Homes England) provides the equity loan. We’re a government agency funded by the Department for Levelling Up, Housing and Communities.

Help to Build improves access to custom and self build

Help to Build is a government equity loan, available to those in England who want to custom build, self build or shell build a home.

Custom and self build homes are not just for those who have owned or built a home before.

Once your home is built we pay the equity loan to your lender to reduce the amount of repayment mortgage you need to borrow.

No interest is charged on the equity loan for the first 5 years. You will start to pay interest from year 6, until the equity loan is paid back in full.

The amount you borrow as an equity loan is secured against your property and registered at HM Land Registry.

The equity loan is paid to the lender when the build is complete to help to reduce the repayment mortgage amount you need.

Your home is at risk if you do not keep up repayments on a mortgage, equity loan or other loans secured against it.

Custom, self and shell build homes

A custom build or self build home means that you can decide on the:

• design - with features that suit your lifestyle, such as energy efficiency and smart technology

• internal layout - a design that suits your specific needs

• location - you can build on land you already own, or register with a local authority to find serviced plots of land available for development in their area

With custom build - you work with a small or large developer to design the build, specifications and layout of the home to meet your needs now and in the future. A home is likely to be on a plot of land in a housing development built specifically for custom build.

With self build - you create an individual home to suit your needs and handle every stage of the building project. You input into every part of the process, including buying a plot of land, working with professionals like architects, builders and project managers, and even sourcing building materials.

With a shell home - you buy the outside shell of a watertight home, with walls, a roof, and windows, but it’s unfinished inside. It allows you to tailor the internal layout to suit your needs, including where to build internal walls. You’re responsible for everything from first fix which includes plumbing and electrics. It is unique from all other homes. This may or may not include the land and outline planning permission.

Land - will have outline planning permission to build or convert an existing building, that meets legal and mortgage lender criteria for a custom or self build home.

Key things to know about Help to Build

Help to Build is not a discount scheme on the cost for the land and build. They will be the same without an equity loan.

When you take out an equity loan, the amount you borrow is based on the estimated land and build costs.

When you repay the equity loan, we work out the amount you need to repay using the market value of the home, including the value of the land.

The market value will include the value of the land you built on, even if you owned the land before, and did not include it in the estimated costs during your equity loan application.

If the market value of your home increases, so does the amount you have to repay on your equity loan.

You cannot have an equity loan without a mortgage. Your self build mortgage (interest only) must be from a lender registered with Help to Build. Once your home is built, the registered mortgage lender will switch you onto a repayment mortgage.

Your mortgage lender may need to give you a decision in principle before you apply for Help to Build.

No interest is charged on the equity loan for the first 5 years, but you will start to pay interest from year 6.

Help to Build: Equity Loan is not regulated by the Financial Conduct Authority (FCA).

How it works

You can borrow an equity loan of between 5% and 20% (up to 40% in London) of the estimated costs to buy the land (if needed) and build your new home.

To apply for an equity loan, you’ll need a:

• deposit of at least 5% of the estimated land and build costs

• a 95% self build mortgage from a lender registered with Help to Build based on the estimated costs

By using Help to Build, lenders will accept a minimum customer deposit of just 5% towards their mortgage.

Your mortgage and the equity loan

The self build mortgage covers the costs to buy the land (if needed) and build the home.

Once your home is built, we pay the equity loan to your lender to help reduce the amount you need to borrow on a repayment mortgage.

Once your build is complete and your mortgage lender has completed any further checks, you will be switched to a repayment mortgage.

The repayment mortgage must be in place until you repay the equity loan off in full. Your equity loan term starts at the same time as the repayment mortgage.

If your repayment mortgage deal is for more than 25 years, we can extend the term of your equity loan to match it.

Excluding VAT and contingency in your application

When you estimate the land and build costs for your equity loan application, do not include:

• VAT costs - as this can be claimed back on most building materials, within 3 months of completing the build, and there’s no VAT to pay on labour costs when self building.

• contingency budget - a flexible amount of money that could be used to pay for any unexpected costs during the build. The money may come from your savings, or you may be able to borrow it from your mortgage lender.

Formal offer and next steps

If you’re eligible for Help to Build, we’ll send you a formal offer with details of what we agreed.

You’ll have 3 years, from the date of our formal offer, to build your home.

Your mortgage lender will check your build progress regularly. They’ll release lump sum payments to you at different stages, to help pay for the build.

What you can apply to fund

You can apply for the Help to Build: Equity Loan to do any of the following:

• build a new home

• buy the land where you want to build

• build an airspace development flat (airspace developments are new homes built in unused space above an existing building)

• convert a commercial property into a residential home

• customise a shell build

• demolish an existing property and replace it with a new home

You cannot use the equity loan to:

• build more than one home

• make upgrades to your current home

• build a second home - you must live in the new home as your only home, and sell other homes within 12 months of the date the new home is built

What you can spend

If you’re eligible, you can spend up to £600,000 on your new home. This must include the cost of the land if you don’t already own it, and no more than £400,000 on the cost to build it.

These costs are exclusive of VAT and contingency budget, and may include costs for demolition (where relevant).

What you can borrow

We work out the equity loan amount you can borrow based on the estimated costs to buy the land (if needed) and build your new home.

You could borrow between 5% and 20% (up to 40% in London) of the total estimated costs.

Example one

In this example, the estimated costs for land and build (excluding VAT and contingency budget) are £400,000 and if you’re eligible for 20%, your equity loan would be £80,000.

Land and build costs (excluding VAT and contingency budget)

Land purchase price: £150,000

Build cost: £250,000

Total estimated costs: £400,000

Help to Build: Equity Loan

Total estimated costs: £400,000

Equity loan percentage: 20%

Equity loan amount: £80,000

An £80,000 equity loan offer stays the same, even if you end up using your contingency budget to help fund the build, or if your costs increase or decrease.

Example two

In the example below, land is not included in the estimated costs. Only the estimated costs for build, £350,000, (excluding VAT and contingency budget) are included. If you’re eligible for 20%, your equity loan would be £70,000:

Land and build costs (excluding VAT and contingency budget)

Land purchase price: £0

Build cost: £350,000

Total estimated costs: £350,000

Help to Build: Equity Loan

Total estimated costs: £350,000

Equity loan percentage: 20%

Equity loan amount: £70,000

The examples below show how the equity loan can be used to help with the costs to build a new home (inside and outside of London), when the total estimated land and build costs are £400,000.

During the build

What you’ll borrow from your mortgage lender when your home is being built

Deposit: £20k (5%)

Self build mortgage: £380k (95%)

Total amount: £400k

After the build

What you’ll borrow from your mortgage lender and us when your home is complete

Once your home is ready and you’ve told us you want the equity loan, we’ll pay it to your mortgage lender. This will reduce the amount you need to borrow from them on a repayment mortgage.

Equity loan offer outside of London: £80k (20%):

Deposit: £20k (5%)

Equity loan: £80k (20%)

Repayment mortgage: £300k (75%)

Total amount: £400k

Equity loan offer inside of London: £160k (40%)

Deposit: £20k (5%)

Equity loan: £160k (40%)

Repayment mortgage: £220k (55%)

Total amount: £400k

This information is for illustrative purposes only. Actual figures will vary depending on the equity loan amount you borrow. Some mortgage lenders will ask if you have a contingency budget (extra money). This is to cover any unexpected circumstances or costs during the build phase. Consider getting independent financial advice about whether Help to Build is right for you.

Repaying the equity loan

When you take out the equity loan, you agree to repay it in full, plus interest and management fees, if you:

• come to the end of your equity loan term (normally 25 years)

• sell your home

• repay your repayment mortgage

• do not keep to the conditions of your equity loan contract (and we ask you to repay the equity loan in full)

You cannot make regular monthly payments to repay the equity loan.  But you can repay your equity loan in full or part at any time.

We work out the equity loan amount you need to repay as a percentage of your home’s market value at that time.

You must pay for a Royal Institution of Chartered Surveyors (RICS) surveyor to value your home when you want to repay in part, or in full.

You can make part payments at any time. Any part payment you choose to make on top of your monthly interest payment must be at least 10% of the market value of your home at the time.

If you make a part payment you cannot leave less than 5% of the equity loan to repay.

Part payments will reduce the amount of equity loan you have left to repay. We work out your interest payments based on the amount of equity loan you have left to repay.

If you own the land and did not include it in your estimated costs when you applied for the equity loan, it’s important to understand that its value is included in the market valuation at the time you want to repay. We use the total market value of the land and home to work out how much equity loan you need to repay.

Who can apply?

You can apply on your own, or with up to 3 other people. To be eligible, you must all:

• be 18 years of age or over

• have a right to live in England^{[footnote 1]}

• live in the newly built home as your only home

• be able to get a self build mortgage

You cannot apply for Help to Build if:

• you’ve had a Help to Build: Equity Loan in the last 2 years

• you owe money on another government home ownership scheme

Before you apply

Outline planning permission

You should think about outline planning permission for the land you want to build on.

Some lenders may ask you to provide evidence of outline planning permission before you apply for a self build mortgage.

To find out more about outline planning permission go to: https://www.gov.uk/guidance/making-an-application#outline-planning-permission

Agree to sell other homes or land you own

You, and anyone you apply for an equity loan with, must live in the home you build.

To use Help to Build, you or anyone you live with cannot have any interest in any other residential land or property in the UK or abroad.

You’ll have 12 months from completing your new home to sell any residential land or property you own.

If you’re married, in a civil partnership, or living with a partner as if you were married, and apply for the equity loan on your own, your partner must also sell residential land or property they own.

Anyone aged 17 or over, who lives with you but is not applying for an equity loan with you, must sign an occupier’s consent form to confirm they do not have an interest in your home.

We’ll carry out checks to make sure you can sustain the equity loan payments and meet our anti-money laundering requirements.

You may need a decision in principle from your mortgage lender before you apply for Help to Build.

When is the equity loan paid?

As you get close to the end of the build, your mortgage lender will arrange for a RICS surveyor to value your home.

You’ll need to check with your lender if they include the cost for this in your self build mortgage.

Once you know how much your home is worth, you’ll need to decide if you want the equity loan to help reduce your repayment mortgage.

If you want the equity loan, let your legal adviser know.

They will get you to sign the legal paperwork before they send it to us, and work with your mortgage lender to arrange for the equity loan to be paid.

The legal adviser will also register our legal charge on your home with HM Land Registry. This charge is shown on the title deeds (ownership documents) for your home and gives us security for the equity loan amount you have borrowed.

Your mortgage lender will arrange to switch you to a repayment mortgage.

You will start to pay your £1 monthly management fee for the equity loan by Direct Debit.

If you change your mind at any time and do not want to use the equity loan, you must let us know. You must also tell your legal adviser and your mortgage lender, as this may change the amount they lend you and whether you’re able to switch from a self build to a repayment mortgage once your home is finished.

Equity loan fees and costs

When you apply for an equity loan you agree to pay interest and other fees and costs.

These include:

• Monthly management fee: when your equity loan starts, you must pay a £1 monthly fee by Direct Debit, until you pay back the equity loan in full.

• Interest: no interest is charged on the equity loan for the first 5 years. You start to pay interest from year 6.

• Administration fees:  you pay administration fees when you make changes to your equity loan, such as making a part payment.

• Costs for late payment: we may charge interest on overdue amounts you owe us. We will apply interest every day until the money you owe is paid in full. You may also have to pay other reasonable costs, if we need to take action against you to collect money you owe us.

We collect interest and fees by Direct Debit. This helps to keep your payment details up to date. Our equity loan administrator manages these payments for us.

Understanding interest and fees

We charge interest on the equity loan we provide. No interest is charged on the equity loan for the first 5 years, and you start to pay interest from year 6.

You must pay interest until you repay your equity loan in full.

For the first 5 years:

• no interest is charged, and

• you pay a £1 monthly management fee by Direct Debit

From year 6:

• you continue to pay the £1 monthly management fee, and

• you pay monthly interest on the equity loan

From year 7, the rate of interest increases every year, and your interest payments also increase every year. This means the total amount you need to repay on your equity loan will increase.

How we work out monthly interest payments

In year 6, you’ll pay interest at a rate of 1.75%. We work out your monthly interest payment by taking the yearly interest fee and dividing it into 12 equal monthly instalments.

You pay interest in monthly payments by Direct Debit. The payments are managed by our equity loan administrator.

Your monthly interest payments do not go towards paying back your equity loan.

To work out monthly interest payments, the sum is:

(equity loan amount x interest rate) ÷ 12 months

The table below shows interest due in year 6, if the equity loan is £80,000, and the interest is a rate of 1.75%. In this example, the interest charged for the year is £1,400 and when divided by 12 months the monthly interest payments are £116.67 each. This information is for illustrative purposes only. Actual figures may vary depending on your equity loan amount.

Year 6 (interest rate of 1.75% per year)	Annual	Monthly
Interest 1.75%	£1,400.00	£116.67
Management fee	£12.00	£1.00
Total	£1,412.00	£117.67

How to work out yearly interest rate rises

From year 7, the amount of interest you pay increases each April.

To work out interest, we take the Consumer Price Index (CPI) rate of inflation from September of the previous year, and add 2%.

If the rate of inflation is 0% or less, the interest rate will rise by 2%.

This is how we would work out interest in April of year 7, if the CPI was 2.5% in September of the previous year:

2.5% (CPI) + 2% = 4.5%

1.75% (previous year’s interest rate) x 4.5% = 0.08

1.75% + 0.08 = 1.83%

The interest rate for year 7 would be 1.83%.

Based on an equity loan of £80,000 and an interest rate rise from 1.75% to 1.83%, the interest would be worked out using the sum:

(£80,000 x 1.83%)  = £1,464.

We divide this by 12 to work out your monthly interest payments of £122.

The increase in interest between year 6 (at 1.75%) and year 7 (at 1.83%) is £64 per year, or £5.33 per month.

Year 7 (interest rate of year 6 increasing by 2% + CPI)		Annual	Monthly	Annual increase	Monthly increase
Interest	1.83%	£1,464.00	£122.00	£64.00	£5.33
Management fee		£12.00	£1.00	-	-
Total		£1,476.00	£123.00	£64.00	£5.33

The table below shows the estimated annual interest and the monthly payments worked out for an equity loan of £80,000, if the rate of inflation is 2.5%. This table only shows the first 8 years and interest will continue to rise every year until the equity loan is paid in full. These payments are on top of the monthly management fee.

		Annual interest	Monthly payments
Year 1 to 5	No interest payments	£0	£0
Year 6	1.75% interest rate	£1,400.00	£116.67
Year 7	1.83% interest rate	£1,464.00	£122
Year 8	1.91% interest rate	£1,528	£127.33

Differences in interest payments

You’ll pay slightly less interest if you take out an equity loan at the start of the year, and slightly more interest if you take it out later.

Your interest payments start in year 6, on the fifth anniversary that you took out your equity loan.  If the fifth anniversary of your equity loan is between:

• 1 April and 31 December, the first interest rate rise will be the following April. For example, if your equity loan was paid to the mortgage lender on 1 June 2022, interest payments would start on 1 June 2027 (the fifth anniversary and the start of year 6) and the interest rate would increase in April 2028. This means your interest would rise in less than 12 months, so you would pay more interest overall.

• 1 January and 31 March, the first interest rate rise will be in April of the following year. For example, if your equity loan was paid to the mortgage lender on 1 January 2022, interest payments would start on 1 January 2027 (the fifth anniversary and the start of year 6) and the interest rate would increase in April 2028. This means you would pay a lower rate of interest for slightly longer.

You may pay back more than you borrow

Any change in property prices can affect the equity loan amount you have to repay.

When you want to repay, the amount of equity loan you owe is worked out as a percentage of your home’s market value or sale price (whichever is the higher of the two). This means the amount you repay can go up and down.

If the market value of your home increases, so does the amount you have to repay. And if the value of your home falls, the amount you have to pay also falls.

Remember, if you already owned the land that your home was built on, the land value will be included in working out how much you need to repay.

How to apply

You can apply for a Help to Build: Equity Loan at: www.gov.uk/apply-for-help-to-build-equity-loan.

Follow our social media channels for the latest information.

Equity loan administrator

After the equity loan is paid to your mortgage lender, your details will be passed to our equity loan administrator.

They will:

• set up your Direct Debit to pay the £1 monthly management fee

• manage your fees and interest payments on your equity loan (after the first 5 years)

• help you if you want to pay off some or all of your equity loan

• help you if you want to make changes to your equity loan account

Structural alterations

Once we’ve paid the equity loan to your lender, you cannot make structural alterations to your home, such as adding an extension or converting a bedroom into a bathroom, without our permission.

We will only give permission for structural alterations that are needed for medical reasons.

Structural alterations can increase the market value of your home, and your equity loan is linked to the value of your home.

If you make structural alterations without our permission, and they increase the value of your home, the equity loan amount you owe will increase.

If we give you permission to make structural alterations, and they increase the value of your home, when we work out how much you owe on your equity loan we will ignore the increase in value relating to the alteration.

Redecorating or fitting a new kitchen or bathroom is not a structural alteration, and you do not need our permission for this.

You have the option of paying off your equity loan before you make structural alterations.

Other restrictions

You are not allowed to sublet your home (move out and rent the whole property out to another person) without our permission.

You can have a lodger, as long as you live in your home at the same time as the lodger and do not give the lodger a formal lease or tenancy which would give them an interest in your home.

You must have building insurance for your home, keep your home in a good state of repair, and keep to all other conditions of the insurance policy.

Changes in the housing market could affect your property price

House prices can go up and down. As your equity loan is linked to the market value of your home, any change in property prices can affect the amount you have to repay.

Example 1: Estimated build cost only, with property value increase, where you already own the land (outside London)

Land purchase price: -

Estimated build cost (excluding VAT and contingency): £350,000

Total estimated land and build cost (excluding VAT and contingency): £350,000

Equity loan %: 20%

Equity loan amount: £70,000

Year	Increase in property prices	Market value	Equity loan that would need to be repaid (20% of market value)*
0 (at completion)	-	£500,000	£100,000
1	2%	£510,000	£102,000
2	2%	£520,200	£104,040
3	2%	£530,604	£106,121
4	2%	£541,216	£108,243
5	2%	£552,040	£110,408

*The market value will include the value of the land you’ve built on, even if you owned the land before, and did not include it in the estimated costs during your equity loan application.

Example 2: Estimated land and build cost, with property value decrease (outside London)

Land purchase price: £150,000

Estimated build cost (excluding VAT and contingency): £350,000

Total estimated land and build cost (excluding VAT and contingency): £500,000

Equity loan %: 20%

Equity loan amount: £100,000

Year	Decrease in property prices	Market value	Equity loan that would need to be repaid (20% of market value)
0 (at completion)	-	£500,000	£100,000
1	-2%	£490,000	£98,000
2	-2%	£480,200	£96,040
3	-2%	£470,596	£94,119
4	-2%	£461,184	£92,237
5	-2%	£451,960	£90,392

Changes in the housing market could affect your property price

House prices can go up and down. As your equity loan is linked to the market value of your home, any change in property prices can affect the amount you have to repay.

Example 3: Estimated build cost only, with property value increase, where you already own the land (inside London)

Land purchase price: -

Estimated build cost (excluding VAT and contingency): £400,000

Total estimated land and build cost (excluding VAT and contingency): £400,000

Equity loan %: 40%

Equity loan amount: £160,000

Year	Increase in property prices	Market value	Equity loan that would need to be repaid (40% of market value)*
0 (at completion)	-	£600,000	£240,000
1	2%	£612,000	£244,800
2	2%	£624,240	£249,696
3	2%	£636,725	£254,690
4	2%	£649,459	£259,784
5	2%	£662,448	£264,979

*The market value will include the value of the land you’ve built on, even if you owned the land before, and did not include it in the estimated costs during your equity loan application.

Example 4: Estimated land and build cost, with property value decrease (inside London)

Land purchase price: £200,000

Estimated build cost (excluding VAT and contingency): £400,000

Total estimated land and build cost (excluding VAT and contingency): £600,000

Equity loan %: 40%

Equity loan amount: £240,000

Year	Decrease in property prices	Market value	Equity loan that would need to be repaid (40% of market value)
0 (at completion)	-	£600,000	£240,000
1	-2%	£588,000	£235,200
2	-2%	£576,240	£230,496
3	-2%	£564,715	£225,886
4	-2%	£553,421	£221,368
5	-2%	£542,352	£216,941

Get expert help and advice

Custom or self building a home can feel overwhelming, so it’s important to seek expert advice.

While Homes England provide your Help to Build: Equity Loan, we do not offer financial or legal advice, or advice on the building process, or builder mediation services.

But we can point you in the right direction to other organisations who provide free and impartial information.

Homebuilding

The National Custom and Self Build Association (NaCSBA) is the voice of the self-build and custom build housing sector. Their mission is to make custom build and self build a mainstream choice for everyone seeking a home of their own.

NaCSBA works to share knowledge and best practice across the sector and advise you through their Self Build Portal website. Local councils must keep a list of anyone who wants to custom or self build, and you can find the registers local to you there.

Local authority planning and housing teams can get planning advice and information on the Right to Build Task Force’s website.

The National Self Build and Renovation Centre is a permanent venue offering independent advice and support to those who want to build their own home. They offer events, courses, exhibitions, and expert advice.

Finance matters

MoneyHelper is an independent organisation set up by the government. It has a range of free and unbiased tools and advice for homebuyers including understanding mortgages, how much you can afford to borrow, and using a mortgage adviser.

To find a financial adviser, or mortgage broker, search the financial services register.

Stamp duty

For information on stamp duty land tax and the latest rates, please visit Stamp Duty Land Tax.

HM Land Registry

For information registering land or property, and search services, please visit HM Land Registry.

Legal matters

For help in finding a legal adviser, search The Law Society’s online database or call 020 7320 5650.

For your local Citizens Advice visit the Citizens Advice website.

Apply

You can apply for a Help to Build: Equity Loan at: www.gov.uk/apply-for-help-to-build-equity-loan.

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If you would like this guide in an accessible format (for example, in large print or Braille, or as an audio version), please email enquiries@homesengland.gov.uk

Homes England lends the Help to Build: Equity Loan on behalf of HM Government. We are an executive non-departmental public body sponsored by the Department for Levelling Up, Housing and Communities.

Homes England as an entity and Help to Build: Equity Loan as a product are exempt from the Financial Conduct Authority (FCA) authorisation and regulation.

Your home is at risk if you do not keep up repayments on a mortgage, equity loan or other loans secured against it.

1. Check with your self build mortgage lender that they will lend to you based on your residence permit status. ↩