The guidance document on the Help to Stay – Wales scheme was published on 6th November 2023. We’re delving into this newly launched scheme by the Welsh Government. This equity loan is designed to assist individuals facing financial challenges with their mortgage payments. Have a read, listen, or watch as we break down the guidance to understand how this scheme works and who it might benefit.

Overview of the Help to Stay – Wales Scheme

Let’s break down how the Help to Stay scheme works. 

Who is it for? 

The Help to Stay – Wales scheme is designed to reduce the mortgage payments of struggling homeowners who’re facing financial difficulty. 

You could qualify if your household income is under £67,000 and your home is worth less than £300,000. You must also have sought assistance from your lender already and put together a budget plan with a debt adviser. 

How does it work? 

If you qualify, Help to Stay pays off some or all of your mortgage and replaces it with a secured equity loan that’s interest free for 5 years.

How much could you get? 

Up to 49% of your homes value. So up to £147,000. The amount you borrow is based on your mortgage advisers recommendation – in most cases, likely to be just enough to make your mortgage payments affordable (given your other commitments). 

An example of how the Help to Stay – Wales Scheme could benefit homeowners in Wales

Let’s consider an example. You have an income of £2,500 per month. Your outgoings are currently £2,500 per month too. And in June 2024, your mortgage payments will double, meaning your outgoings will increase to £3,000 per month.

Let’s say you have a 10 year old child, and you don’t want to be forced out of your home. There’s nothing else you can do to reduce your monthly outgoings, and you’ve sought advice from your lender and a debt counsellor.

Your existing mortgage payments are £500pcm, and they’ll increase to £1000pcm.

The Help to Stay – Wales scheme would potentially step in to pay enough off of the mortgage, so that your monthly payments remained affordable and you reduce the risk of defaulting on your mortgage, or potentially becoming homeless.

The mortgage balance would be replaced with an Equity Loan (initially interest free) which would ultimately have to be repaid.

Key Features of the Help to Stay – Wales Equity Loan

The equity loan is interest-free for the first five years, with interest charged at a rate of 2% above the Bank of England Base Rate thereafter.

Borrowers could be eligible for a loan of up to 49% of the property’s value, with the loan being directly used to repay the mortgage partially, or potentially, in full. It’s crucial to note that the equity loan is secured against the property, and failure to meet the terms could result in repossession.

When this loan is taken out, it will essentially replace an element of the mortgage. Monthly payments will reduce, but in return, you agree to the terms of the Help to Stay – Wales loan. Importantly you should know what this is an equity loan.

What are the main drawbacks of the Help to Stay – Wales Scheme?

There are 3 primary things you should be aware of when taking out this type of loan:

1. Although initial interest is set at 0% – meaning no monthly payments, the interest payments rise drastically from year 6 onwards, meaning monthly payments will have to be made.
2. The loan is still secured against your home, so if you fail to make these payments, or meet the terms of the loan, your property could be repossessed by the lender.
3. This is an equity loan. Let’s say you borrow 10% of your homes value in 2023. In 2028, you apply to repay the loan. At that point, you will still owe 10% of your homes’ value – even if that’s more than the amount you initially borrowed.

Eligibility criteria

To qualify for the Help to Stay scheme, individuals must be facing or expecting difficulties in affording monthly mortgage payments – so they must be a homeowner, this isn’t available to home buyers. Household income should not exceed £67,000, and the property must meet specific criteria, including being in Wales, having a value under £300,000, and being free of legal actions like repossessions.

There is also a requirement that any applicants have sought advice from their lender, along the lines of the mortgage charter, and also have a budget plan from a debt councillor.

Application Process for Help to Stay

Eligible candidates must engage with their primary lender and seek advice from debt services. The application involves providing bank statements, income evidence, and a letter confirming debt advice. The Welsh Government then evaluates the property’s value through a surveyor and refers applicants to a mortgage advisor.

Repayments after year 5

The equity loan remains interest-free for the first five years, after which interest is charged at 2% per annum above the Bank of England base rate for the next ten years.

Here’s an example of what monthly payments could look like from year 6 onwards – remember, these are on an interest only basis, so the capital sum will remain due at the end of the term.

Example of a £50k equity loan:

Base rate (5.25% as at 3rd August 2023) + 2% = 7.25%

(This rate will change in line with Bank of England base rate changes).

£50,000 x 7.25% / 12 months = £302.08

Repaying the Help to Stay – Wales Loan

The loan becomes repayable either after 15 years, or when the property is sold. When it comes to repaying the loan, the amount you owe is calculated based on equity, not on the original loan amount. For this reason, the amount you pay back could be higher than what you borrowed.

It is possible to repay the loan in part, however, when you do this, a RICS valuation will be required. This normally costs around £500. Clearly, then if you do repay the loan in part, it would make sense to do this in big chunks.

Here’s an example of what part repayment could look like if your home increased in value.

Original property value: £200,000 |Equity Loan: £60,000 | % share of equity loan: 30%

New Market Value: £250,000 | Increase in equity loan value in line with new market value: £75,000

Borrower repays: £25,000 | Remaining equity loan: £50,000

New % share of equity loan: 20%

Considerations and Restrictions

Borrowers must obtain permission for structural changes to the property, as these could impact the equity and, consequently, the repayment amount. So whist the loan is in place, you don’t have total freedom to make improvements to the property.

The scheme acknowledges the challenge of repaying the equity loan at the end of the 15 year term and encourages borrowers to plan for it, suggesting using savings or investments, as a plan to create a repayment strategy to settle the loan at the 15 year point.

You should also consider how having this loan in place might restrict your ability to remortgage in the future. This is something your mortgage adviser will discuss with you before recommending the Help to Stay – Wales Scheme.

Conclusion

In summary, the Help to Stay scheme offers a temporary solution for homeowners in financial distress, providing relief through an equity loan. While it comes with terms and considerations, it aims to prevent repossession and homelessness. If you find yourself eligible and in need, explore the detailed guidance provided by the Welsh Government.

Remember, financial decisions are significant, so it’s always wise to seek personalized advice from professionals. Stay tuned for more insights into the financial world, and don’t forget to subscribe for regular updates. Catch you in the next episode. Bye for now!