Help to Buy Wales is a government scheme which can help home buyers in Wales get a new build property with a 5% deposit.
Help to Buy Wales works by the government offering an equity loan to home buyers for 20% of the value of the property. The purchaser then puts a minimum 5% deposit down and gets a mortgage for the remainder of the purchase balance.
The property must be a new build and have a purchase price of £300,000 or less and be from a developer registered with Help to Buy Wales.
The Help to Buy scheme described here applies to Wales only. There are separate schemes in England, Scotland, Northern Ireland and London, so please visit those pages on our website.
How it works…
In essence you borrow 20% of the purchase price on an interest-free basis for the first five years, as an equity loan. This 20% loan must be repaid after 25 years or if you sell the property before then.
Purchase Price: £200,000
Help to Buy Equity Loan: £40,000
Your Deposit: £10,000
Mortgage required: £150,000
As this is an Equity Loan if the value of your property increases so does the pound value of the loan amount. On the flip side of this, if the value of your property decreases, so does the pound value of the loan.
- A property purchased for £200,000 would have a Help to Buy equity loan of £40,000 (20% of the purchase price). The property is then sold 3 years later, and the loan has not been repaid. The property sells for £240,000 so 20% of £240,000 means an equity loan repayment of £48,000.
- A property purchased for £200,000 would have a Help to Buy equity loan of £40,000 (20% of the purchase price). The property is then sold 3 years later, and the loan has not been repaid. The property sells for £160,000 so 20% of £160,000 mean an equity loan repayment of £32,000.
What happens after 5 years…
If you have not repaid in full your Help to Buy equity loan after five years, you will be required to pay an interest fee of 1.75% of the amount of your equity loan at the time you purchased your property, rising annually from the fifth anniversary of your equity loan by the increase (if any) in the Retail Price Index (RPI) plus 1%.
RPI figures are put together by the Office for National Statistics.
A monthly management fee of £1 is paid from when you first purchase. The interest fee payment is not made for the first five years, after this date a monthly fee will be payable.
To illustrate the above:
Years 1 to 5 after purchase: no fees are payable
Year 6 after purchase: 1.75%
Year 7 after purchasing and onwards: 1.75% + RPI + 1%
These fees do not go towards paying off the government loan and the full loan must be repaid within 25 years or when the property is sold, if earlier.
You can repay part of the equity loan back at any time and this is known as staircasing.
- Help to Buy Wales cannot be used to purchase a second home.
- Help to Buy Wales cannot be used to purchase a property to be rented out.
- The mortgage must be on a repayment basis.
- The mortgage must be from a provider registered with Help to Buy Wales.
- The housing developer must be registered with Help to Buy Wales.
There are alternatives to the Help to Buy scheme for example many people opt to purchase the property using a 90% or 95% mortgage instead. If this is something you would like to discuss, please get in touch.
Help to Buy Wales can seem complicated so if you need any help please get in touch to discuss your requirements now.