What is Help to Buy (Wales)?
Help to Buy (Wales) is an equity loan scheme designed to help first-time buyers and existing homeowners in Wales buy new-build properties with deposits of as little as 5%.
To use the scheme, you'll need to be buying a new-build home priced up to £300,000 and have a minimum deposit of 5% saved.
The Welsh government will provide a loan of up to 20% of the property's value, meaning you'll only need to get a mortgage for the remaining 75% (assuming you have a deposit of 5%). This could help you unlock better rates from lenders.
Here's an example of how you could buy a home using Help to Buy (Wales):
- House price: £200,000
- Deposit (5%): £10,000
- Equity loan (20%): £40,000
- Mortgage (75%): £150,000
Help to Buy (Wales) - Phase 2
Between its launch in January 2014 and the end of 2017 more than 6,400 people bought a home using Help to Buy (Wales), with almost three quarters of these homes being purchased by first-time buyers.
The Welsh government is investing up to £290m in a second phase of the equity loan scheme, which it hopes will support the construction of 6,000 new homes by 2021. The current scheme will run concurrently.
How do I pay back my Help to Buy (Wales) equity loan?
The equity loan provided by the government is interest-free for the first five years. Interest is then charged at 1.75% in year six.
After the sixth year, the interest rate will increase in line with the Retail Prices Index plus 1%. You'll also be charged an administration fee of £1 a month.
You'll need to pay the equity loan off in full when you sell the property.
As the loan is for a percentage of the property's value rather than a set amount, you'll need to pay 20% of your sale price. That means that if the property goes up in value, you could end up paying more back than you borrowed.
Alternatively, you can pay the loan off in chunks of 10% or more while you still own the property – this is known as 'staircasing'. You'll need to have the property independently valued before doing this, and you might also have to pay admin and legal fees.
Are there any restrictions with Help to Buy (Wales)?
- The scheme can only be used to buy new-build and off-plan properties. Bear in mind that if you buy off-plan, you'll generally need to complete no more than six months after exchanging contracts, but do your research first as some mortgage offers have shorter expiration dates. A mortgage broker can advise on this.
- You won't be able to let a home bought using Help to Buy (Wales); it has to be your main residence.
- If you sell the house before paying the loan back, the government will be entitled to a proportional share of its equity. So if you sold the house in the example mentioned earlier for £210,000, having borrowed 20% of the original buying price (£40,000), you'd need to pay the government 20% of the price you sold for (£42,000).
- The main difference between Help to Buy (Wales) and its English equivalent is the price limit – you can buy a home priced up to £600,000 in England but only £300,000 in Wales.