Help To Buy - Home GOV.WALES

12Help to Buy – Wales Buyers’ GuideStage 2: Authority to ProceedKnow how your finances stack upHelp to Buy – Wales Ltd will check if you’reeligible for the scheme.Help to Buy – Wales Ltd will use aneligibility calculator tool to check yourmonthly income and outgoings, includinghousehold bills and estimated mortgagerepayments in the calculations. To beeligible for the scheme your debt oroutgoings must not exceed 45% of yourhousehold income.Your repayment mortgage should be lessthan 4.5 times your gross annual income.Help to Buy – Wales Ltd are committedto responsible lending and ensuringapplicants are able to comfortablyafford the shared equity loan. Therefore:* There is no flexibility on Debt toHousehold Income Ratios above 45%.Apply for a repayment mortgageYou are responsible for arranging yourrepayment mortgage. Only apply for yourrepayment mortgage once you have theAuthority to Proceed from Help to Buy –Wales Ltd. If you apply for a repaymentmortgage first and are not eligible toapply for Help to Buy – Wales equity loan,you may lose money. Your credit rating mayalso be affected if the mortgage lender hascarried out a credit check on you.Get Authority to ProceedIf your application is approved, Help toBuy – Wales Ltd will give you the Authorityto Proceed (ATP) to buy your new home.This is valid for 3 months.When you have the Authority to Proceed,your conveyancer will receive legalguidance and forms to complete. Returnthese to Help to Buy – Wales Ltd so youcan buy your home.Your conveyancer is responsible forexplaining the legal information to you.A list of conveyancers that have undertakenHelp to Buy training can be found atwww.gov.wales/help-buy-wales/howapplyGet the conveyancer’s packWhen you have the Authority toProceed, your conveyancer will receivelegal guidance and forms to complete.Your conveyancer is responsible forexplaining the legal information to you.

Updated January 2021Stage 3: Mortgage offer andexchange of contractsYour conveyancer will: explain the Help to Buy – Wales:Equity Loan contract and your legalresponsibilities. They will remind youthat your application must be accurateand true. False or misleading informationcould be fraud. This is a criminal offenceand you may have to repay the equityloan in full; ask you to sign the property sale contractand the Help to Buy – Wales: EquityLoan contract; make sure your repayment mortgageoffer, property price and deposit are thesame amount as agreed in the Authorityto Proceed; ask Help to Buy – Wales Ltd forpermission to exchange contracts.13Help to Buy – Wales Ltd will:Check all the paperwork is correct andissue the Authority to Exchange (ATE)to your conveyancer so they can exchangecontracts.You will: pay your deposit and be legally boundto buy your new home by an agreeddate. You pay 5% cash deposit whenyou exchange contracts, even if yourfull deposit is more; make sure your repayment mortgageoffer does not expire before thecompletion date.Home visitsYou can visit your new home once you haveexchanged contracts. Your homebuilderwill arrange this for you. This will give youa chance to confirm any last-minute detailsor changes before you move in. Speak toyour conveyancer or your homebuilder formore information about home visits.

14Help to Buy – Wales Buyers’ GuideStage 4: Completing the purchasePay for your new home on completion: you pay the rest of your deposit(if more than 5%); your mortgage lender provides its shareof the funds to buy your new home; Help to Buy – Wales Ltd will pay yourequity loan to your conveyancer; you legally own your new home, get thekeys and can move in.Confirm the saleYour conveyancer contacts Help to Buy –Wales Ltd to confirm the sale.Registration of interestYour conveyancer will register a legalcharge on your home for Help to Buy– Wales Ltd. They will also register aseparate legal charge for your mortgagelender. This is recorded with HM LandRegistry and will be shown on yourproperty title deeds.When you’re ready to sell your home,you need to let us know. You must pay backyour equity loan and repayment mortgagebefore we can remove our legal chargeon the property.Your homeYour home may be repossessed if youdo not keep up repayments on yourrepayment mortgage, equity loan orother loans secured against it. Considerseeking independent financial advicebefore making any financial decisions.After you buy your home, Help to Buy –Wales Ltd will: set up your Direct Debit to pay the 1 monthly management fee; arrange for you to pay fees and interestpayments on your equity loan; help set up repayments when you’reready to repay some or all of yourequity loan.

Updated January 2021How long does it take to buya new home with an equity loan?You have 3 months to exchange contractswhen you get our Authority to Proceed.You must complete buying your homewithin 6 months of exchanging contracts.When you exchange contracts, you makea legal commitment to buy the property.If you change your mind, you may haveto pay costs.15

16Help to Buy – Wales Buyers’ GuideRepaying your equity loanWhen you take out your equity loan,you agree to repay it in full, plus interestand management fees.You must repay your equity loan in full: at the end of the equity loan term; or when you pay off your repaymentmortgage; or when you sell your home; or if you do not comply with the terms setout in the equity loan contract and weask you to repay the loan in full.If your home is worth less than when youbought it, it may affect your ability to payyour repayment mortgage. Consider talkingto a financial adviser about what you coulddo if this happens.Work out what you need to repayYou can pay off all or part of your equityloan any time before it is due.At any time, you can make part repaymentsof at least 10% of what your home is worth,to reduce how much you owe.There are no monthly equity loanrepayments to reduce the total amountof equity loan you borrow. You can payoff all or part of your equity loan any timebefore then.For example, you could repay 10% if youtook out a 20% loan.You may pay back more than youborrowYou will need to get a Royal Institutionof Chartered Surveyors (RICS) valuationreport. A qualified surveyor will estimate thevalue of your home, based on its conditionand the current housing market.The percentage you borrow is based on themarket value of your new home when youbuy it.When you repay your loan in full or in part,the amount you pay back is worked out asa percentage of the market value at thetime you choose to repay.If the market value of your home rises,so does the amount you owe on your equityloan. And if the value of your home falls,the amount you owe on your equity loanfalls too.Your home could be at risk if you do notkeep up with repayments on your mortgage,so it’s important to consider how you willmanage if your home drops in value.To work out how much you pay back weneed to know the current market valueof your home.If you are selling your home, we usethe current market value of your homeas determined by a Royal Institution ofChartered Surveyors (RICS) valuer, or theprice it sells for, whichever is highest. In allother circumstances the market value willbe determined by RICS valuer.

Updated January 202117Understanding your interest paymentsInterest is what we charge for lending youthe funds to help you buy your Help to Buy– Wales home.Interest payments do not go towards payingoff your equity loan. You start to pay interest from year 6,on the fifth anniversary that you tookout your equity loan; Your first interest payment will be 1.75%of the amount you borrowed; Your interest will go up each year in Aprilby the Consumer Price Index (CPI),plus 2%.The amount of monthly interest you payis worked out by multiplying:1. the Help to Buy – Wales: Equity Loanamount (purchase price x equity loanpercentage). The equity loan percentagewill reduce following any part repayment.2. by the interest rate (in the first yearthis is 1.75%). The interest rate increasesevery year by adding CPI plus 2%.The interest rate from the previous year isthen used to work out the interest rate risefor the following year.Payments are worked out as an annualfigure and then divided by 12 equalinstalments to get a monthly interestpayment.Based on the yearly interest rate rises,it is possible to show the typical annualand monthly payments, including interestand management fees. You will receivea personalised example which estimatesthe fees you’ll pay on your equity loan.The figures in this guide are examples only.Typical annual and monthly payments,including interest and management fees,based on an equity loan in a region of 40,000 and inflation (CPI) of 2.5%:If the market value of your home at thetime of purchase was 200,000 and youborrowed a Help to Buy – Wales: EquityLoan amount of 40,000 (20%), in year 6,on the fifth anniversary of taking out yourequity loan, the interest rate used to workout your monthly interest fee would be1.75%. So the sum is: ( 40,000 x 1.75%) 12 58.33 interest every month inyear 6.How we work out interest rateincreasesInterest rates go up each year in April bythe Consumer Price Index (CPI), plus 2%.The table below shows how the interestrate rise is worked out.YearInterest rate increasecalculationInterestrate1-5No interest payments0%6Not applicable1.75%1.75% (year 6 rate) 0.08%71.75% (previous interestrate) x 4.5%(2.5% CPI 2%) 0.08%(interest increase)1.83%1.83% (year 7 rate) 0.08%81.83% (previous interestrate) x 4.5% (2.5% CPI 2%) 0.08% (interestincrease)1.91%

18Help to Buy – Wales Buyers’ GuideDifferences in interest paymentsYou will pay slightly less interest if you takeout an equity loan at the start of the year,and slightly more interest if you take itout later.Your interest payments start in year 6,on the fifth anniversary that you tookout your equity loan if your equity loananniversary is between: 1 April and 31 December, your firstinterest rate rise will be the coming April.For example, if you take out your equityloan on 1 June 2021, interest paymentswill start on 1 June 2026 (year 6) andthe increase in interest will take place inApril 2027. This means your interest willrise to the next rate sooner. 1 January to 31 March, your firstinterest rate rise will be a year or morelater in the following April. For example,if you take out your equity loan on1 January 2022, interest payments willstart from 1 January 2027 (year 6) andthe increase in interest will take placein April 2028. This means you will paya lower rate of interest for slightlylonger.What happens if the Consumer PriceIndex (CPI) is below 0%?CPI can go up and down.If when we work out your interest, CPI is0% or less, a figure of 0% will be used forCPI to calculate your interest rate rise.This means the interest rate increase willbe a minimum of 2%. CPI will never be lessthan 0% when used to work out the interestrate increase.Example:Where CPI is equal to or less than 0%,we use 0% to work out the interestrate rise:0% 2% 2% interest rate rise.

Updated January 202119Equity loan fees and costsYou agree to pay the fees and costs whenyou take out the equity loan, and theseinclude:Monthly management feeWhen your equity loan starts you mustpay a 1 monthly fee. This is paid byDirect Debit for the life of your equity loan.For example, if you have the equity loan for5 years (60 months) you will pay a total of 60 in management fees.InterestYou start to pay interest from year 6, on thefifth anniversary of your equity loan and thisis calculated at a rate of 1.75% of the equityloan amount. The interest rate will rise eachyear thereafter in April by the ConsumerPrice Index (CPI), plus 2%.The interest you pay during the life of theequity loan does not reduce the amountyou owe.The amount of interest you pay will reduceif you make part repayments. Interest willbe worked out on the amount of equity loanleft to pay.Administration feesYou may be required to pay administrationfees, for example if you make changes to,or redeem, your equity loan.A full list of charges will be available fromHelp to Buy – Wales.In addition to administration fees, you areresponsible for paying other costs and fees,such as a Royal Institution of CharteredSurveyors (RICS) valuation report,legal fees, mortgage arrangement fees.Costs for late paymentYou may be charged interest on overduemoney you owe us. Interest is worked outbased on the amount you owe. Interest isapplied every day until the money you oweis paid in full. You may also be asked topay other reasonable costs that we haveincurred, if we need to take action againstyou.We collect interest and management feepayments by Direct Debit. This helps tokeep your payment details up to date.

20Help to Buy – Wales Buyers’ GuideHelp to Buy: Equity Loanand mortgagesHelp to Buy – Wales: Equity Loan normallyhas a term of 25 years. If you choose toswitch lenders to get a better deal on yourrepayment mortgage, either with yourcurrent or a new lender, you will need toget our permission first.If you want to borrow more on yourmortgage, you will need to meet certainconditions.You can only borrow more when youremortgage if you use the money to pay: for repayment of all or part of yourequity loan; for structural alterations on medicalgrounds, if we agree to it; to remove or add a homebuyer to theequity loan agreement (Transfer ofEquity); for other personal circumstances thatyou agree with us.Add and remove homebuyersfrom the equity loanWith our permission, you can add orremove a homebuyer from the equity loan.Homebuyers who are added must meetour Help to Buy – Wales eligibility criteria.One of the homebuyers named, must staythe same as when the equity loan wastaken out.

Updated January 202121Structural alterationsHelp to Buy – Wales homes are for buyers,now and in the future. We want to makesure they are always affordable.Making structural alterations to your homecan increase its market value.You cannot make structural alterations toyour home without our permission, such asadding an extension or converting abedroom into a bathroom.We will only give permission to makestructural alterations on medical grounds.The equity loan is linked to the value of yourhome. So, if you make structural alterationswithout our permission and it increases theOther restrictionsYou are not allowed to sublet your homewithout our consent.Like your repayment mortgage, you musthave building insurance for your home,keep it in a good state of repair and complywith other conditions.value of your home, the equity loan amountyou owe will increase.If we give permission to make structuralalterations and the value of your homeincreases, we will ignore the value of thatalteration when we work out how muchyou owe on your equity loan.Redecorating or fitting a new kitchen orbathroom are not structural alterations,and you do not need our permission todo this.You have the option to repay your equityloan before you make structural alterations.

22Help to Buy – Wales Buyers’ GuideChanges in the housing market couldaffect your property priceChanges in the housing market means that house prices can go up and down.These examples show what could happen if a property price increases.Increase in a homeIn this example, the homebuyer has:Property value 200,000Homebuyer’s deposit 10,000 (5%)Equity loan % 40,000 (20%)Repayment mortgage 150,000 (75%)This assumes the property value increasesby 2% every year. If you sell your home atthe start of year 6, you would need to repay 44,163.Changes in the housing market could affectyour property price.Changes in the housing market means thathouse prices can go up and down.Start ofyearPropertyprice(%) increaseProperty priceHomebuyerentitlement:80%* of propertyvalueHelp to Buyentitlement:20% of propertyvalue10% 200,000 160,000 40,00022% 204,000 163,200 40,80032% 208,080 166,464 41,61642% 212,242 169,793 42,44852% 216,486 173,189 43,29762% 220,816 176,653 44,163* This entitlement excludes any balance you owe on your repayment mortgage

Updated January 2021This example shows what could happenif a property price decreases.Example 1: Decrease in a homeIn this example, the homebuyer has:Property value 200,000Homebuyer’s deposit 10,000 (5%)Equity loan % 40,000 (20%)Repayment mortgage 150,000 (75%)23This assumes the property value decreasesby 5% every year. If you sell your home atthe start of year 6, you would need to repay 30,951 (20% of the sale price) to settlethe equity loan. Since the sale price of yourhome in this example is less than when youbought it, it may affect your ability to payyour repayment mortgage and the Help toBuy – Wales: Equity Loan.Start ofyearPropertyprice(%) increaseProperty priceHomebuyerentitlement:80%* of propertyvalueHelp to Buyentitlement:20% of propertyvalue10% 200,000 160,000 40,0002-5% 190,000 152,000 38,0003-5% 180,500 144,400 36,1004-5% 171,475 137,180 34,2955-5% 162,901 130,321 32,5806-5% 154,756 123,805 30,951* This entitlement excludes any balance you owe on your repayment mortgage

24Help to Buy – Wales Buyers’ GuideGlossaryCapital repaymentsExchange of contractsCapital is the money you borrow; interest isthe charge made by the lender (in this case,Help to Buy Wales Ltd) on the amountyou owe.Where you and the seller have all thepaperwork in place, you legally agree to buya home. When contracts are exchanged,you’ll need to pay an exchange deposit of5% to the seller. At this point, an agreementto buy becomes legally binding.CompletionThis is the final stage in the sale of aproperty, and the point at which it legallychanges ownership to you, the homebuyer.Consumer Prices Index (CPI)CPI is a government annual measure ofinflation. CPI is measured at different pointsin the year.We use the September measurement andapply it to our interest rate rise every April.DepositA house deposit is usually an upfrontpayment which is normally a percentageof the house price and not included in themortgage. In the case of a Help to BuyWales home, the deposit at exchange ofcontracts must be 5% of the price of thehome.A deposit is your equity in the house youbuy.InterestInterest is the cost of borrowing money.You will usually pay interest for borrowingmoney, such as an equity loan. Interestis usually shown as a percentage of theamount you borrow. This percentage iscalled the interest rate. The higher the rateof interest, the more interest you pay back.For example, on 100 at a 5% interest rateyou’ll pay 5 in interest per annum.LeaseholdYou only own a leasehold property fora fixed period. A lease is a priva

new home. An equity loan is secured against your property in the same way a repayment . mortgage is. The . Help to Buy - Wales: Equity Loan scheme is not regulated by the Financial Conduct Authority (FCA). Example of how much your deposit, mortgage and equity loan may be if you buy a new home worth 200,000: Homebuyers