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Help to Buy - Wales

The key information you need to know about Help to Buy mortgages in Wales

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 27th August 2019 *

Perhaps you’re wondering about Help to Buy in Wales, how it works - or if it’s right for you? Or maybe you’re looking for a little help in getting started, or in finding out how much you could borrow?

Why not have a chat with one of the expert advisers we work with? Your circumstances are unique and an advisor can help steer you in the right direction, even if you’ve been declined or have bad credit.

Here’s what you’ll learn in this article

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What is Help to Buy Wales?

Help to Buy is an initiative that was set up by the government to help homebuyers and home movers across the UK. In Wales, the scheme runs until 2021, and then will be extended in a more limited capacity to mid-2023.

It allows buyers to take out a shared equity loan from the government for up to 20% of the purchase price of a home. The rest of the funds need to come from a combination of a deposit (at least 5% of the property price), and a repayment mortgage through a qualified lender. 

How does Help to Buy Wales work?

The government won’t charge any interest on the loan for the first 5 years, but homes must be bought from a registered Help to Buy Wales builder, to a maximum value of £300,000. Your application is not means tested, and you have to be a UK resident.

You can buy a greater share of the house (buying out the government’s share) using a process called ‘staircasing’. You can do this all the way until you own 100% of the house.

Example: buying a £200,000 house with a 15% equity loan

  Price Percentage
Total Price of Home £200,000 100%
Your Deposit £10,000 5%
Your Mortgage £150,000 75%
Your Government Equity Loan £40,000 20%

How to apply for a Help to Buy Wales mortgage

In principle, the process is straightforward. It’s like buying a house with a mortgage, but with the additional two steps at the beginning: sourcing a qualifying home and the government equity loan.

Here’s a step by step guide to finding and completing on a property through the Welsh Help to Buy scheme.

  1. Find a property that has been (or will be) constructed by a Help to Buy Wales registered builder.
  2. Make an application to Help to Buy Wales for a shared equity agreement. 
  3.  If Help to Buy Wales approves your application, you can submit your mortgage application to a Help to Buy registered lender.
  4. If the provider makes you an offer, you can proceed with the purchase as normal.

What are the advantages of Help to Buy Wales?

There are a number of obvious benefits to using Help to Buy in Wales. They include...

You can buy sooner 

The scheme can help you to buy a home sooner, as you’ll need a smaller deposit. The loan also increases the affordability - making house purchases accessible to those who earn less.

The monthly repayments are lower

You can make repayments at a more favourable rate - as the government’s loan is interest-free for the first 5 years. You may also get access to cheaper mortgage rates from your lender - as the government’s contribution means that you’ll be borrowing less overall.

It’s also worth bearing in mind that, with repayment mortgages, some of the first few years can be the most expensive. Though you’ll be paying interest at a normal rate to your lender, a half decade of interest-free payments on your government loan may help to ease the financial pressure in the early days.

After five years, the government’s loan will start to increase. It’s worth mentioning that, in the market conditions at the time of writing, this rate is still quite competitive.

It’s flexible:

You can pay back the government loan at any time - and without penalty. This process is called ‘staircasing’, and it can allow you to eventually buy out the government’s share of your property completely. As interest increases on the loan at year six, the sooner you pay it off, the less you pay overall.

What are the disadvantages  of Help to Buy Wales?

There are some downsides to the Help to Buy scheme in Wales, which we’ll outline below.

Your choices are limited

You’re limited to builders and lenders who are signed up to the scheme. You’re also limited only to new-build homes - which in some cases come at a premium price when compared to older constructions.

Help to Buy mortgages are often different from standard mortgages, due to the government acting as a third party (with a claim on the sale). This means that there is a little less choice.

Your government loan could become more expensive later

Your first 5 years are interest-free, but after this, the rate of interest will begin to increase each year.  In year 6, it’ll be at 1.75%, and will increase by 1% each year following, plus any increase in the RPI (which is tied to inflation).

Please note: even if the RPI falls, the rate will still increase by 1% each year.

So, like an adjustable rate mortgage, if inflation were to increase significantly, your costs may go up too. But, as we said earlier, in the current market - the 1.75% rate offered by the government is quite competitive.

You could end up in negative equity 

Though this is debatable. Some believe that Help to Buy has contributed to inflation in house prices, citing past examples in which prices on new builds have fallen over time - leaving buyers in negative equity.

This has not been the case everywhere and would be more of a concern to buyers who are looking to move in the near term. Even if this were to happen, if you were planning to stay in your new house for a longer period of time, your house falling in value may be less of an issue.

The government loan may affect your capital growth

If you don’t pay off the government’s share of the loan, by the time you come to sell - the government will reclaim its stake at the current market value.

Remember, the government’s loan is not fixed - it is taken as a percentage of the house’s value. So if your house appreciates in value, this could mean you pay back more than you had originally borrowed. That said, the government would also help to absorb any losses, if your house depreciated in value.

There may be restrictions on what you can do with the home

As you initially only own a share of the house, you may have to ask for permission for any major changes, such as substantial renovations or subletting.

The terms of the scheme could change

There’s nothing to say that a future government might not change the terms around Help to Buy, though it would be safe to say that they’ll do this very carefully, considering how many people have used the scheme.

What is the term of a Help to Buy mortgage in Wales?

Your equity loan has to be paid off within 25 years, or by the time you sell your house You may want to pay it off sooner, however, to reduce the increasing interest that begins at year 6.

As for your Help to Buy mortgage, these work like conventional mortgages. As such, you can choose a range of terms, with the most common being 25 years.

Am I eligible for a Help to Buy Wales mortgage?

To be eligible for the scheme you must:

  • Be resident in the UK
  • Have a minimum deposit of 5%
  • Be buying from a builder who is registered with the scheme 
  • Be taking out a repayment mortgage with a qualifying lender
  • Be buying a home not exceeding £300,000
  • Be able to raise the other 80% of the value through a mixture of your deposit and conventional lending. 
  • Agree not to sublet the house (in whole, or in part) 
  • Not already own a home that you’re renting out, or planning to rent out once you move.

How does Help to Buy Wales differ from the rest of the UK?

The Help to Buy scheme applies in England, Wales and Scotland - but there is some variation. 

For example, in England, you need to arrange a Help to Buy mortgage through a specialist Help to Buy advisor, and mortgages can be used on homes of a higher value - up to £600,000. 

In Scotland, the government loan is interest-free, indefinitely - but can only be used for homes up to the value of £200,000.

In Northern Ireland, there is no shared equity loan scheme, but there are other possibilities - such as Rent to Own.

Want to know more about Help to Buy mortgages in Wales? Get some expert advice

We’ve helped over 92,000 people find the right mortgage, in fact our customers consistently rate us 5 stars on Feefo, mainly because of the level of service and the fact that we offer  OMA offers a 5-star service, with access to leading brokers who:

  • Are experts on Welsh Help to Buy
  • Are also OMA and LIBF Accredited
  • Cover the whole market
  • Help new buyers every week to get their feet on the ladder

Speak to a Help to Buy Wales advisor

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 27th August 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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