There is an interesting report from the Halifax (see BBC Business) that a mortgage for first-time buyers is £1,300 cheaper than renting. This is based on a three-bedroom house costing the average first-time buyer £677 a month compared to the average of £787 rent paid on the same-sized property.
But the Halifax has said that mortgages rates would not have to rise by very much for the reverse to be true. It says that once interest rates have risen to 1.5%, renting begins to be cheaper than buying.
These figures are clearly not based on property and rental prices in the south east. Far from the monthly rent for the average three-bedroom house being £787, the average rent for a one-bedroom flat in Brighton and Hove is now £801 per month!
But what the Halifax is right in pointing out is that in recent times renting often has cost more than buying. But that is set to change. It is not that rental costs will become more affordable in the south east, but the impact of inevitable interest rate increases will push certain households over the financial edge.
Are we ready for this? Not at all. Five years of historically low interest rates has created a level of complacency that borrowing will remain cheap, if you can secure a mortgage. A Bank of England base rate of 0.5% has resulted in average mortgage rates of 3.06%. When the base rate rises, the banks and building societies will follow suit. What will happen to those who are expected to pay a further £100 or £200 per month?
Advice agencies, such as the Citizens Advice Bureau and BHT’s own Advice Centres have seen reductions in our Legal Aid. Are we as equipped as we need to be? Probably not. At our Brighton Advice Centre we have had to reduce the number of staff from 33 to 16 due to legal aid cuts. Rather than taking on 1,450 new cases we are now restricted to just 590.
Now is the time for government at national and local levels to invest in advice services so that we can scale up our services to meet the anticipated need. Recent cuts have seen an exodus of experienced and skilled advisors from the sector. We need to reverse this trend. Through good quality advice and assistance, huge sums can be saved from future cost of providing very expensive temporary accommodation for households made homeless when interest rates are increased.
On the plus side, BHT has the contract from the Legal Aid Agency to provide a Court Duty service. Each day one of our solicitors is available at the County Court in Brighton where we can assist those facing homelessness who arrive without having sought advice. This service is free. We also provide a Court Duty service in Lewes, Eastbourne and Hastings courts.