Homeowners struggling with soaring mortgage bills could receive loans to help them keep their homes, the Welsh Government has announced.

Under the £40m Help to Stay scheme, people at risk of losing their home can apply for a loan to pay off part of their mortgage and reduce their monthly payments.

The loans, which are interest- and repayment-free for the first five years, aim to help homeowners as fixed-rate mortgages end, with interest rates at their highest since 2008.

Help to Stay will be open to households earning up to £67,000.

Applicants, who will need to show evidence of facing financial hardship due to mortgage trouble, must first contact their lender as well as seek independent debt advice.

People can borrow a maximum of 49 per cent of the value of their home, so up to £147,000 on the maximum property value of £300,000.

The loans are secured by a second charge on the property and must be repaid within 15 years.

From year six, interest is charged at 2 per cent plus the Bank of England rate.

Borrowers could be forced to sell their home if they do not keep up with loan repayments.

Julie James, the minister responsible for housing, said: “The current economic climate presents many challenges for homeowners as they face the significant rise in fuel costs, high inflation, escalating rent and house prices with incomes often not keeping pace.

“By widening our current mortgage rescue offer, we have the opportunity to help more people at an earlier stage before they face the awful threat of repossession.”

The two-year scheme was agreed as part of a budget deal with Plaid Cymru.

Siân Gwenllian, for Plaid Cymru, said: “We have been able to create a made-in-Wales solution which will provide direct support to those facing the greatest difficulties.”

Help to Stay, which it is estimated could help around 450 households, will work alongside support offered through mortgage providers.

In June, most major mortgage lenders signed up to a UK Government charter agreeing to a range of support measures such as allowing interest-only payments for six months.

Chancellor Jeremy Hunt has ruled out offering direct financial support for borrowers, warning that a major injection of cash would make inflation worse and drive up the cost of living.

Janet Finch-Saunders, for the Conservatives, argued it is not the role of the Welsh Government to hand out loans to pay off people’s mortgages.

The party’s shadow housing minister in the Senedd said: “The scheme is flawed and raises several questions, including whether it is being targeted correctly and why social landlords are not being supported to invest in homes that are threatened with repossession.”

Across the UK, about 800,000 fixed-rate mortgages will expire in the second half of this year and 1.6 million will end in 2024.

People remortgaging next year are set to pay an average of £2,900 a year more, according to the Resolution Foundation, and latest stats show mortgage possession claims increasing by 15%.

Jane Dodds, leader of the Liberal Democrats in Wales, welcomed the scheme, saying: “We must do everything in our power to prevent homelessness and repossessions at every opportunity.

“The financial and human costs of families losing their homes is dreadful.”

But she questioned whether the budget will be enough to meet demand, adding: “We must also consider the long-term impact of borrowing and ask whether we’re just moving the cliff edge.”

Those already in possession proceedings may qualify for support under council-run mortgage rescue schemes which have operated in Wales since the 2008 financial crisis.