Embarking on your Help to Buy Wales Repayment Journey.
With a wealth of experience advising clients across Wales, I’ve helped many homeowners in Wales navigate their way through Help to Buy Wales repayment.
As people approach the end of the 5 year interest free period on their loan, the topic of Help to Buy Wales repayment becomes increasingly import, and rightfully so.
When it comes to repaying your Help to Buy Wales loan, forward planning is key.
While the Help to Buy Wales loan offers undeniable advantages, deciding whether repayment aligns with your unique circumstances requires careful consideration.
The 4 most common reasons we see for Help to By Wales loan repayment are:
- Avoiding monthly interest payments – after 5 years, you’ll start paying interest on your Help to Buy Wales loan.
- Gaining control of your property – You’re not normally allowed to carry out home improvements or let out property with a Help to Buy Wales loan. Once it’s repaid, these restrictions are lifted.
- Get a Better Mortgage Deal – Not too many lenders deal with Help to Buy Wales remortgages. If you want access to the entire mortgage market, you’ll need to repay your Help to Buy Wales loan.
- Financial Freedom – remember, your Help to Buy Wales loan is linked to your home’s value. If your home increases in value, so will the amount of your Help to Buy Wales repayment. Repaying your Help to Buy Wales loan will unshackle you from this liability.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP PAYMENTS ON YOUR MORTGAGE.
Table of Contents
Understanding Help to Buy Wales
How does the Help to Buy Wales Scheme Work?
You can find out in depth information about how the scheme works on the Help to Buy Wales website.
The Help to Buy Wales loan was taken out when purchasing a new build property. It would normally be used to contribute 20% of the purchase price, with the remaining amount coming from a deposit (5%), and a conventional repayment mortgage (75%).
The beauty of the Help to Buy Wales loan is that it’s interest free for the first 5 years. After that point, Help to Buy Wales repayment becomes something to consider!
Do you have to pay back money from Help to Buy Wales?
Yes! And you may end up paying back a lot more than you originally borrowed.
As long as you hold on to your Help to Buy Wales loan, the Welsh Government effectively owns a share in your property (normally 20%).
This means, when it comes to selling it, they’ll be entitled to 20% of the proceeds. This is calculated based on the value at the time of sale.
If you decide to pay off the loan before selling, the value of the property will be assessed as it is at the time you repay the loan.
How much interest do I pay under my Help to Buy Wales loan?
You’ll usually pay no interest during the first 5 years of the Help to Buy Wales loan. However, after year 5, you’ll start paying annual interest. Remember, interest does not go towards paying off the balance of your loan.
The interest calculation from year 6 onwards is normally calculated based on the original amount borrowed and for the 1st year is set at 1.75% – so your monthly payment on a £40,000 HtBW loan would be £58.33pcm.
Every year after that, the interest rate will increase each year by the Consumer Price Index + 2%. So if the CPI was 2.5%, your interest rate would increase from 1.75% to 1.83%.
Outside of interest, the hidden cost of the HtBW Shared Equity loan is the Shared Equity element. Help to Buy Wales will always be entitled to 20% of your home’s value.
Is the Help to Buy Equity Loan Scheme in Wales loan the same as Help to Buy Scheme in England?
No, it is not. Help to Buy Wales was set up in Wales to serve the people of Wales, whereas Help to Buy was set up for the people of England. Although they are broadly similar, the processes are slightly different.
6 Steps: Help to Buy Wales Repayment Process (when remortgaging)
This is the process we follow when we’re helping our clients remortgage to repay their Help to Buy Wales loan. A similar process can be followed when you’re selling your property and repaying the Help to Buy Wales loan in the process.
Whichever route you follow, your new mortgage typically forms a key part of the process, so it’s best to involve your mortgage broker at the earliest stage possible.
1. Assess Borrowing Capacity (and work out rough figures)
You’ll need to work out how much money you can get together.
Can you put some cash towards your Help to Buy Wales repayment, or will you just be relying on mortgage borrowing?
This is where a mortgage broker comes in handy.
You should also check out some house valuation tools – maybe try Nationwide’s House Price Index. From here you can calculate roughly how much you’ll need to pay off Help to Buy Wales – normally 20% of the valuation amount.
You’ll need to get hold of your mortgage statement to work out how much is outstanding on your mortgage. It’s absolutely vital that you check for any early repayment charges on your mortgage – these should normally be avoided.
Once you’ve got an idea of how much cash you can raise (and how much Help to Buy Wales repayment will cost), you can start to plot a course forward.
Can you afford to pay off the Help to Buy loan in full? Or will you just repay a portion (staircasing).
You’ll also need to consider costs of the valuation, broker fees and legal fees – set side £1000 – £1500 for this.
2. Surveyor Valuation (watch out for this pitfall)
Next, you’ll need to work out how much you owe Help to Buy Wales. Help to Buy Wales have an in depth guide, but in short, you’ll need to book and arrange a visit from a surveyor.
The surveyor will need to meet certain requirements from Help to Buy, and they’ll produce a special report. This will include the value of the property which will be used to calculate the amount you need to pay back Help to Buy.
The pitfall – this report needs to be no older than 3 months old on the day of completion. For that reason it can make sense to hold off on this report – particularly if you’re fairly certain of your homes value. That being said, if house prices are increasing, holding off on your valuation could be costly!
3. Find Your Ideal Mortgage (if needed) and Apply For it!
Now it’s time to apply for your mortgage.
Now, if you’re keen to secure your mortgage sooner, you could apply for your mortgage before getting your surveyor valuation – especially when rates are on the up.
The risk of applying for a mortgage early is that you won’t know for sure what the Help to Buy Wales repayment figure is going to be. If it comes back higher than expected, then you could end up losing the rate anyway!
A good mortgage broker will help you choose the right lender, and time this bit right.
Your new mortgage will need to cover your existing outstanding mortgage and 20% of your home’s market value. If you’re putting in cash yourself, then that might reduce what you need to borrow.
As part of your mortgage, you might need another valuation. This is in no way related to your Help to Buy Wales valuation, and it does not remove the need for a Help to Buy Wales valuation.
4. Instruct your Solicitors
Solicitors will process your Help to Buy Wales repayment. They will be responsible for gathering the funds from yourself and your mortgage lender and sending them to Help to Buy. Your solicitor will also be responsible for removing Help to Buy Wales’s interest in your property from your title deeds.
It’s really important that you tell your solicitor at outset that you plan to repay a Help to Buy Wales equity loan, because this typically involves extra work.
Remember, if you’re remortgaging, your new lender might contribute towards your legal fees. But bear in mind that Help to Buy Wales repayment typically carries an additional fee.
5. Fill in the Forms
Next step is to fill in and complete the Help to Buy Wales Post Sales Event Instruction Form. You can find that here.
You’ll need details about:
- Your Solicitor
- Your New Lender
- Your Existing Lender
- Your Help to Buy Wales reference number
Your mortgage broker can help you fill in this form.
Top Tip: If you email this form to Help to Buy Wales along with your valuation report using the email you originally signed up to Help to Buy Wales with, it’ll save some time.
Once Help to Buy have looked through this information, they’ll be in touch with you or your solicitors with a redemption statement. This is essentially an invoice to repay your Help to Buy Wales loan.
6. Enjoy Being Help to Buy Wales Free!
Your mortgage has been offered, and funds are ready to be released to your solicitor.
When your solicitor is ready, they can do the final checks and transfer the funds so that you now have one mortgage and no Help to Buy Wales loan.
I’m selling my home, is there anything extra I need to be aware of?
The process is very similar for home movers. Only the loan is repaid from the sale proceeds rather than a remortgage.
Remember the 3 month rule when it comes to valuations. Fill in the post sales event form and inform your solicitors.
You can then proceed with the sale and purchase normally.
Help to Buy Wales Repayment FAQs
How much will I need to repay Help to Buy Wales?
Help to Buy Wales repayment is normally equal to 20% of your home’s value at the time you pay the loan back.
If your home is valued at £200,000 when you sell it, or choose to repay the Help to Buy Wales loan, the amount you’ll owe Help to Buy Wales would normally be £40,000.
You’ll need to instruct a surveyor to confirm what the value of your home is. If you’re selling, your Help to Buy Wales repayment will be the greater of your sale price, or your independent Help to Buy Wales valuation.
Are there any other costs when repaying Help to Buy Wales?
You’ll normally need to instruct a surveyor to value your property. In addition, you’ll need to pay a solicitor. If you’re remortgaging, you could get a contribution towards legal costs.
When do I need to repay my Help to Buy Wales Shared Equity loan.
Your Help to Buy Wales end date is typically repayable 25 years after you took it out if you stay in the property, or when you sell the house.
You can also repay the Help to Buy Wales loan at any time either in part, or in its entirety.
However, for reasons we’ll discuss, many choose to repay their Help to Buy loan at or around the 5 year anniversary.
Where do you get the money to repay Help to Buy Wales?
Raising the cash to repay the Help to Buy Wales loan could be done in a number of ways:
- Borrowing extra on your mortgage or getting a new mortgage.
- Paying cash directly to Help to Buy Wales via your solicitor.
- Selling your home and paying of Help to Buy Wales via the proceeds.
Why would I want to repay my Help to Buy Wales Loan?
We’ve already look at the top 4 reasons we see for people repaying their Help to Buy Wales Loan. Those are:
- Avoiding increasing interest payments,
- Gaining control of your property
- Get a better mortgage deal
- Achieve financial freedom so Help to Buy aren’t entitled to
Does having a Help to Buy Wales loan restrict me in any way?
You might not know that whilst you have a Help to Buy Wales loan, you’ll be restricted as to what you can do. You’ll need to get permission from Help to Buy to:
- Remortgage to a different lender.
- Get additional borrowing with your existing lender or a new one
- Change ownership of your property (i.e. add a spouse)
- Home improvements – these are not permitted except in exceptional circumstances.
Once you’ve gone through the process of Help to Buy Wales repayment, none of these restrictions will apply.
How is my Help to Buy Wales Repayment Amount Calculated?
When it comes to repaying the Help to Buy Wales loan, whether you are selling or remortgage to repay, Help to Buy Wales will rely on a valuation from the Royal Institution of Chartered Surveyors (RICS). This must be instructed by you.
In most cases, Help to Buy Wales will apply the equity percentage you owe (normally 20%) to your homes’ value to calculate your loan balance. So, for example, if you home valuation is £200,000, you will owe £40,000. This is the case even if the amount you originally borrowed is much less. This is because the Help to Buy Wales loan is a shared equity loan.
When is the best time to repay my Help to Buy Wales loan?
We think the best time to look at whether it makes sense to repay the Help to Buy Wales Shared Equity loan is 3-6 months before your fixed rate is up for renewal.
There are a number of advantages to repaying your equity loan when your mortgage is up for renewal:
- You will normally not be liable to pay any early mortgage repayment charges
- Often your initial mortgage period of 5 years would be aligned with the interest free period of the HtBW loan
- When remortgaging, the lender can often contribute to the legal costs of repaying the HtBW loan
- This is a good opportunity to also consider reducing or increasing your mortgage term to help you manage your monthly mortgage payments.
Can I pay off my Help to Buy Wales loan before my mortgage ends?
This is possible through something called a further advance. However, you’ll need to pay attention to your current lenders criteria, and solicitors may still need to be instructed. With some lenders an early repayment charge will be payable, which could mean waiting until the end of your fixed rate will be more effective.
Can I repay my Help to Buy Wales loan in part?
Yes you can, but not in the same way as you might be able to on your mortgage.
Each repayment normally comes with legal and valuation costs. Therefore only large lump sum payments are possible. You can’t make a partial Help to Buy Wales repayment where it results in less than 5% of the original loan amount.
What happens if I can’t pay back my Help to Buy Wales loan?
You can continue living in your property provided you can keep up with monthly mortgage payments and Help to Buy interest payments.
Provided you keep up payments, and stay within the rules. You will normally not have to repay your Help to Buy Wales loan until you sell your property. When you do sell, the loan would be repaid from 20% of the equity from the sale proceeds.