Help to Buy Wales (Cymru): how it works
How does it work?
It enables first timers and existing home owners to buy new build property up to the value of £300,000 with a minimum deposit of just 5% – that would be less than £7,000 for the average house price in Wales of £139,722 (as of the last quarter of 2013, according to Nationwide).
The Welsh government – through Finance Wales – will then fund a shared equity loan for up to 20% of the purchase price.
So for a property worth £200,000, Finance Wales would give them a 20% shared equity loan of £40,000, meaning a buyer would need to put down:
- a minimum 5% cash deposit of £10,000.
- so the buyer then only requires a 75% loan-to-value (LTV) home loan from a mortgage lender of £150,000 (rather than a 95% LTV mortgage of £190,000).
However, if the buyer sells the property, they must repay the government 20% of the purchase price. For example, if the property originally bought for £200,000 is later sold for £210,000, the buyer would:
- get £168,000 from the sale (80% based on their 75% LTV mortgage and the 5% cash deposit) to pay off their mortgage.
- pay back £42,000 on the 20% shared equity loan to the government.
Are there any fees attached to the shared equity loan?
Yes. Once a buyer receives the shared equity loan, they will be charged an admin fee of £1 a month for the first five years.
In the sixth year, they'll be charged interest of 1.75% of the original shared equity loan amount (£700 on a property bought for £200,000).
From year seven, the interest payable will increase every year by the rate of the Retail Prices Index measure of inflation plus 1%.
Can landlords apply?
No. Help to Buy Wales is not available to landlords and buyers will not be able to sub-let their homes.
Which lenders offer Help to Buy Wales mortgages?
Principality Building Society has two five-year fixes at 75% LTV (at 4.39% and 4.49%) on loans of up to £250,000, available through mortgage brokers. The first comes with a £900 product fee, while the 4.49% deal has no product fee. However, both come with a ‘mortgage commitment fee' – otherwise known as a booking fee – of £99. An early repayment fee is applicable on both five-year fixes at 5% of the original loan amount.
Nationwide Building Society has not announced separate Help to Buy Cymru deals but its core mortgage range is available to first timers and home movers buying new build properties in Wales. The range includes a 2.34% rate available as a two-year fix or tracker at up to 75% LTV with a £900 product fee (although this falls to 2.24% for new applications from existing Nationwide mortgage customers).
First-time buyers pay a reduced product fee of £400 although a non-refundable booking fee of £99 is payable on reservation.
Nationwide also has a 2.64% three-year fixed rate up to 75% LTV, with a £900 product fee. The rate falls to 2.54% for new applications from existing Nationwide mortgage customers. Again, first timers pay a reduced product fee of £400 and a non-refundable booking fee of £99 on reservation.
Monmouthshire Building Society will announce its rates around 20 January and a source told Moneywise that they will be "extremely competitive". Outside of the Help to Buy scheme, it already offers a 95% LTV deal – a three-year fix at 4.69% with no product fee available through brokers.
Are there better deals available outside of Help to Buy?
Arguably yes, but it's difficult to compare them. For buyers who can put down a 25% deposit, there certainly are cheaper 75% LTV deals available.
For example, West Brom Building Society has a 1.89% rate fixed for 22 months but has a hefty £999 application fee and £300 valuation fee. Similarly, the Post Office has a 1.88% fix for 23 months, with a £1,495 application fee and £270 valuation fee.
That said, the buyers wanting use Help to Buy Wales are likely to only have small deposits, so when the Help to Buy rates are compared to what's available on the open market, they are much more competitive (the Leeds Building Society 2.45% deal has a much lower rate than the Halifax 25-month fix at 4.49%, which comes out top of the 95% LTV deals available for first timers at Moneywise.co.uk/compare).
However, the main criticism of the Help to Buy shared equity scheme is the unknown cost of your property's future sale price and the fees that are incurred should you move if you move within the first five years of your loan.
One South Wales-based mortgage broker told Moneywise said his practice had completed £22 million worth of mortgages in 2013, has yet to do a Help to Buy mortgage – shared equity or mortgage guarantee - and planned to do "zero" in the coming year. "We can access far better deals than those under the scheme from the open market for our clients," he said.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.