Help to Build launched today - is it worth it?

[AjitSingh213]

Hi All, 

 

The Help to Build equity loan scheme launched today with Darlington BS being the first lender to offer it. Does anyone else see any benefit in doing it because it is linked to the value of the house not how much you borrow?

 

The help to buy was structured similarly and has been reported as a 'nice little earner' for the government because house prices have been going up. I understand that there are benefits in terms of being able to put a 5% deposit down and not pay interest for 5 years but long term I see the help to build as being even worse than help to buy? 

 

I think it is the reason for it being worse is because self builders create value by building a house. Even one of the examples in the guide it shows that you borrow £70k and on day 1 you have to pay £100k back because on day 1 once the house has been built it is worth significantly more than the cost. Then over time, as the house value goes up, that £100k that you have to pay back goes up in line with the value of the house. 

 

Granted the scheme works in the same way if house prices go down but the trend for house prices over the last 50 yrs is that they have gone up, quite significantly in recent times.

 

Does anyone else have any similar views?

 

Thanks!

[MikeSharp01]

5 minutes ago, AjitSingh213 said:

Help to Build equity loan scheme

Not heard of it - I will ask my local expert! 

[SteamyTea]

Sounds to me that it is closer to renting.

Who will carry the loss if we have a 30‰ market downturn.

[AjitSingh213]

@SteamyTeaI think if there is a drop in house prices, then the government would pick that up, but find it unlikely that the amount you have to pay back will go below what you borrowed. 

 

Just doesn't make a lot of sense to me but trying to see if there are any major benefits which I am missing!

 

[MikeSharp01]

Ok - so I spoke to my local expert. You have to have a mortgage and build the house before you can get the help to build loan - it, in effect, pays off a chunk, size of which depends on a number of factors, of your Mortgage once the house is built - thus reducing the repayments, it is interest free for a period and then you pay interest. Also, by the looks of it, you can get into negative equity with it just like any other loan.

[AjitSingh213]

Hi @MikeSharp01thanks for your reply! So, you would go through your standard mortgage process through Buildstore for example, build the house and then get the help to build which pays off the 20% for example, leaving your deposit as 5% which then brings the monthly payments down? What do you think about it?

 

[MikeSharp01]

45 minutes ago, AjitSingh213 said:

What do you think about it?

Probably best to get the selfbuild mortgage from one of the help to build providers. (Its a government scheme and is basically the same as help to buy but in the self build market.) I guess if you need it then it will help if you can do without it or have a vehicle to pay it off before its starts accruing interest then it may be worth it. However in the current situation you might speculate on what house prices will do because that portion of your homes equity subject to help to build has a fixed lower value (as when you took it out) but the house value may go down. However you can pay it off anytime so you might see it as a moderately risky bridging loan (interest free for a few years) provided you can pay it off otherwise your repayments will go up to cover the help to build portion and it will track your house price at the relevant percentage. Just things to think about as I am no sort of advisor on these matters.