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Wales Help to Stay scheme: "Help to Stay but of what - execution?"

ended 08. November 2023

Brokers have expressed their concerns around a new ‘Help to Stay’ scheme launched in Wales, with one saying ""Help to Stay but of what - execution?".

Help to Stay - Wales will be operated by the Development Bank of Wales and work alongside support offered by mortgage providers through the UK Mortgage Charter for customers who are struggling to afford their mortgage payments.

The scheme says it may be able to help borrowers who meet all of the following criteria:

  • Your household is either in, or facing, mortgage difficulty and you are at risk of losing your home.
  • The property is in Wales.
  • The property is valued at £300,000 or less.
  • The property is subject to only one existing legal charge by your first charge mortgage lender.
  • The applicant is the owner of the property and it is their primary or sole residence.
  • The total household income is not greater that £67,000 per annum.

But brokers have expressed their concerns. According to Ranald Mitchell, director at independent mortgage broker, Charwin Private Clients: "Help to Stay but of what - execution? I understand the sentiment behind this Welsh initiative to help struggling households but taking an equity stake in the property when the market is arguably at its lowest point, is a recipe for disaster. As property prices grow, will the value of the debt increase, making it harder to repay? What about future affordability to repay the debt? If mortgage holders are struggling now, how are they going to repay the debt over ten years? People will be attracted to this scheme, as it may well be the easy option, but I fear for them longer term as, like the Help to Buy Scheme, it is easy in, not so easy out. Hopefully, similar schemes won't be introduced in England, Scotland and Northern Ireland."

Patricia McGirr at Finanze agreed: “This is a case of the right idea but the wrong application. The old saying, 'you can't buy your way out of debt,' holds true here. Despite reports they aren't currently seeing repossessions, the Welsh Government are probably only too aware of the impact large-scale evictions would have on an already stretched social and private housing sector. Swapping debt for equity with a scheme that seems to lack detail would be a case of out of the frying pan and into the fire for homeowners who are already under strain.”

Much the same verdict was reached by Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management: “It is encouraging to see the Welsh Government trying to find ways to help troubled borrowers. However, this scheme is only pushing the problem further down the line. There is no guarantee what the repayments will be in five years or the amount that you will owe. With a conventional mortgage, you reduce the debt over time but with this option you are potentially increasing the debt over time. Also the reports are showing that repossession and arrears are not at a high level, so a scheme like this may not help those potentially struggling. There are too many variables for this to be better than looking at alternative options, like payment holidays, increasing the mortgage term or interest-only.”

Though he accepted the scheme has noble intentions, Craig Fish, director at Lodestone Mortgages & Protection, said it was another case of kicking the can down the road: “This scheme brought in by the Development Bank of Wales has its heart in the right place, but I'm not convinced it is going to help many people, because even an estate agent in Wales commented that they aren't seeing repossessions or people coming to market because they can't afford their mortgage. This scheme is only for those facing a serious financial situation and, in my opinion, it's just a case of 'kicking the can' down the road. No real eligibility for the scheme has been announced other than applicants have to see an independent debt adviser first, so I guess the devil is in the detail.”

Justin Moy, managing director at EHF Mortgages, agreed with Fish: “This is an option that may help a number of borrowers in the short term, but swapping debt for equity is only going to shift the problem down the road for another day, and will inevitably cost more overall. The scheme can mean that repossession is avoided and monthly budgeting can be better controlled, but there are plenty of question marks.”

Stephen Perkins, managing director at Yellow Brick Mortgages, was also sceptical: "Even though a lot of the details about the Help to Stay scheme in Wales are yet to be clarified, the broad outlines suggest this is an awful scheme. Allowing homeowners to use an equity loan from the government to pay down a chunk of their mortgage balance with the shiny lure of it being interest- and repayment-free for five years doesn’t stop this being a trap. The equity loan is repayable in 15 years, which will be shorter than most mortgage terms, and interest is applied at an unspecified level after 5 years. But most crucially, as it is an equity loan the amount owed increases as house prices increase, unlike a mortgage where the debt is not linked to house price variations. Looking to support homeowners is great but this scheme is not the answer and could leave the very people it is designed to help out of pocket and potentially out of home.”

Riz Malik, director at R3 Mortgages, also had his doubts: “I commend the Welsh government for trying to help people during this difficult time but I am not sure this is the solution. The intention is good but I think the scheme needs more thought.”

Bob Singh, founder at Chess Mortgages urged people to go into the scheme eyes wide open: “Borrowers will need to read the fine print before committing to this facility.”

Finally, Jamie Thompson, director at Jamie Thompson Mortgages, said: "There used to be a time when if you couldn’t afford something you were expected to sell it. All this really does is kick the can five years down the road. Especially if when the repayments kick in it must be repaid over 15 years, whereas a mortgage could be repaid over 40. If people can’t afford it now, what makes us think they will be able to five years down the line? It’s almost as if there was a General Election on the way."

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10 responses from the Newspage community

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Editor
Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Help to Stay but of what - execution? I understand the sentiment behind this Welsh initiative to help struggling households but taking an equity stake in the property when the market is arguably at its lowest point, is a recipe for disaster. As property prices grow, will the value of the debt increase, making it harder to repay? What about future affordability to repay the debt? If mortgage holders are struggling now, how are they going to repay the debt over ten years? People will be attracted to this scheme, as it may well be the easy option, but I fear for them longer term as, like the Help to Buy Scheme, it is easy in, not so easy out. Hopefully, similar schemes won't be introduced in England, Scotland and Northern Ireland.
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Editor
Bob Singh
Founder at Chess Mortgages
As the full force of rate rises kicks in, hard-pressed homeowners are looking to the State for help. This scheme for Wales only offers interest-free loans up to £147,000 to reduce the capital on the mortgage and bring payments down to an affordable level. The facility is available only to those with a property value less than £300k and household income less than £67000 pa. The first five years are interest- and capital-free so could provide much needed respite to anyone facing repossession. The 2nd charge loans are available only after consultation with a debt adviser and hardship needs to be proven. The equity loan has to be repaid so if the borrowers position doesn’t improve then they could be forced to sell their house. The amount to be repaid could also alter in line with changing house prices. Borrowers will need to read the fine print before committing to this facility.
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Editor
Craig Fish
Director at Lodestone Mortgages
This scheme brought in by the Development Bank of Wales has its heart in the right place, but I'm not convinced it is going to help many people, because even an estate agent in Wales commented that they aren't seeing repossessions or people coming to market because they can't afford their mortgage. This scheme is only for those facing a serious financial situation and, in my opinion, it's just a case of 'kicking the can' down the road. No real eligibility for the scheme has been announced other than applicants have to see an independent debt adviser first, so I guess the devil is in the detail.
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Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
Even though a lot of the details about the Help to Stay scheme in Wales are yet to be clarified, the broad outlines suggest this is an awful scheme. Allowing homeowners to use an equity loan from the government to pay down a chunk of their mortgage balance with the shiny lure of it being interest- and repayment-free for five years doesn’t stop this being a trap. The equity loan is repayable in 15 years, which will be shorter than most mortgage terms, and interest is applied at an unspecified level after 5 years. But most crucially, as it is an equity loan the amount owed increases as house prices increase, unlike a mortgage where the debt is not linked to house price variations. Looking to support homeowners is great but this scheme is not the answer and could leave the very people it is designed to help out of pocket and potentially out of home.
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Editor
Justin Moy
Managing Director at EHF Mortgages
This is an option that may help a number of borrowers in the short term, but swapping debt for equity is only going to shift the problem down the road for another day, and will inevitably cost more overall. The scheme can mean that repossession is avoided and monthly budgeting can be better controlled, but there are plenty of question marks.
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Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
I commend the Welsh government for trying to help people during this difficult time but I am not sure this is the solution. Firstly, if the scheme has allocated £40m and the maximum loan is £147,000, that helps only 272 households. In addition, as it is an equity loan, the question is what happens at the end of the term? What if the loan book is ever sold? I also don't understand why the loans need to be interest-free for five years. Surely a nominal rate could justified if the aim is to help with rate increases. Maybe an alternative idea would be to use the money to buy homes for social housing, which would at least be an asset and help multiple generations. The intention is good but I think their scheme needs more thought.
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Editor
Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
It is encouraging to see the Welsh Government trying to find ways to help troubled borrowers. However, this scheme is only pushing the problem further down the line. There is no guarantee what the repayments will be in five years or the amount that you will owe. With a conventional mortgage, you reduce the debt over time but with this option you are potentially increasing the debt over time. Also the reports are showing that repossession and arrears are not at a high level, so a scheme like this may not help those potentially struggling.
There are too many variables for this to be better than looking at alternative options, like payment holidays, increasing the mortgage term or interest-only.
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Graham Cox
Director at Bridging Hub
No one wants to see repossessions and families left homeless, so I can see the merit in allowing people to reduce their mortgage debt in order to make payments affordable. But ultimately Help to Stay is just another short-term sticking plaster that fails to address the underlying problem. That housing, both rented and owned, is far too expensive, and we're not building enough homes.
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Jamie Thompson
Mortgage Broker at Jamie Thompson Mortgages
There used to be a time when if you couldn’t afford something you were expected to sell it. Now we seem to expect the government to bail us out. Assuming a 20% equity loan like the help to buy scheme allowed, and an average house price in Wales of £300,000, that would give an equity loan size of £60,000. With the scheme's budget of £40 million, that could stretch to just 666 families, so the impact of this scheme will be negligible overall, though a lifeline to families that are able to use it to stay in their homes. All this really does is kick the can five years down the road. Especially if when the repayments kick in it must be repaid over 15 years, whereas a mortgage could be repaid over 40. If people can’t afford it now, what makes us think they will be able to five years down the line? It’s almost as if there was a General Election on the way.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
This is a case of the right idea but the wrong application. The old saying, 'you can't buy your way out of debt,' holds true here. Despite reports they aren't currently seeing repossessions, the Welsh Government are probably only too aware of the impact large-scale evictions would have on an already stretched social and private housing sector. Swapping debt for equity with a scheme that seems to lack detail would be a case of out of the frying pan and into the fire for homeowners who are already under strain.