New law: New rules set to help first-time homebuyers and self-builders in England

More relaxed mortgage lending rules will mean it is easier for first-time buyers to get on the property ladder in 2022, and private individuals who want to build their own new home in England look set to benefit from a new government ‘Help to Build’ equity loan scheme

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The Bank of England proposes to abolish the rule that buyers must prove they could continue to meet their mortgage repayments even if their interest rate rose by 3%. This will make it easier for first-time buyers to get mortgages. It plans to consult with lenders and other stakeholders in early 2022.

For self-builders, a new government ‘Help to Build’ scheme aims to help:

  • first-time buyers wishing to self-build in England; or
  •  existing homeowners wishing to self-build a new home in England that will become their only home.

They must be able to provide a 5% deposit and obtain a self-build mortgage loan from a lender registered for the scheme. Under the scheme, individuals (not developers) can apply for an additional government loan, usually for a 25-year term, equal to 20% (if outside London) or 40% (if in London) of their land and building costs. Professional fees must be paid separately.

The total cost of the project must not be more than £600,000, and the cost of the new building itself (excluding the land) must not exceed £400,000.

For the first five years the loan is interest-free. Interest is then payable at 1.75% for the first year and rises in line with the Consumer Prices Index plus 2% in subsequent years.

The amount repayable to the government varies in line with changes to the value of the new build. If the new build’s value increases by 10%, so does the amount the homeowner must repay to the government. If it falls by 10%, the amount repayable falls by 10%.

Operative date

  • Now

Recommendation

  • Prospective homebuyers struggling to get a mortgage may wish to try again once a date is set for the new rules to come into force.
  • Private individuals wanting to build their own new home in England should check out and monitor the proposed new Help to Build scheme as the details emerge.

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