Support is underused as pressures in the mortgage and rental markets mean that many in Cardiff are facing increasingly unaffordable housing costs
EVICTIONS in the private rental market are up 206% on 2018 numbers, and mortgage holders are facing increases in their annual interest payments worth thousands of pounds.
Now Cardiff Council has said it is concerned that “some people put off engaging until they are in a real crisis situation”.
Instead, they are urging people to seek support as early as possible, before any issue gets too big.
“The money is there, we just need people to come forward and claim it,” said Coun Lynda Thorne, the cabinet member for housing and families.
A Cardiff Council spokesperson also said that “funding is still available via the council’s cost of living discretionary schemes, and we are encouraging anyone struggling with money worries at the moment to get in touch with our Money Advice Team (MAT) as soon as possible”.
The MAT advise on a wide range of welfare-related issues, including gaining access to support schemes and budgeting assistance.
If necessary, they’re able to put individuals in contact with the Housing Solutions and Prevent team, who can provide financial support and guidance, tailored to individual circumstance.
They have helped keep over 80% of clients in their homes over the last year, while also supporting those who lose their homes in finding alternative accommodation.
The MAT can be found across Cardiff in hubs, foodbanks, schools and many other community venues. There are more details about how to contact them on their website.
- Cardiff Council also has a free, independent and confidential money advice line: 029 2087 1071.
Why is the cost of housing going up so quickly?
Over the course of 2022, the developed world has seen interest rates rise rapidly from their post-2008 floor. In the UK, the Bank of England’s base rate – the rate of interest it charges on loans to commercial banks – has grown from 0.25% to 3.5%.
This is happening because the Bank believes that, in part, the record level of inflation that we’re currently experiencing is due to too much money being spent in the economy.
By increasing interest rates, money becomes more expensive to borrow and more lucrative to save – in theory, this then reduces the amount that people are able to spend.
Wherever money is borrowed, changes in interest rates have an impact. Given that over 90% of UK debt is tied up in the property market, this is where the impact is felt hardest.
In the property market, variable rate mortgages – such as trackers and the standard variable rate – are directly impacted by changes in the Bank of England’s base rate. This means that the amount of interest that the one-in-four holders who are on these mortgages have to pay has been roughly increasing in-line with the base rate.
They’ve already seen a seismic shift – the average UK two-year tracker rate has increased by over two points, making the typical Cardiff borrower on this kind of mortgage between £350 and £400 worse off per month.
With the Bank of England forecasting a peak in the base rate of around 5.2% by the end of next year – an increase of almost another two points – these pressures are only going to increase.
The way most buyers hedge against fluctuations in short-term interest rates is by taking out a long-term, fixed rate mortgage. While the interest on these loans is still impacted by changes to the base rate, it also accounts for expectations of future rates. Basically, these mortgages allow buyers to smooth out interest rate rises by spreading them over a longer period of time.
Like their variable rate siblings, fixed rate mortgages have been becoming increasingly expensive over the past year. This is because expectations for future interest rates have also gone up.
This really became a problem in the wake of the UK Government’s September mini budget. Then-Chancellor Kwasi Kwarteng chose to announce a series of unfunded tax cuts, expanding this year’s government budget deficit by a projected £80bn.
Markets were concerned that the cuts wouldn’t produce substantial growth, and hence would exacerbate the already high levels of inflation that the UK was seeing. Kwarteng’s refusal to release an Office for Budget Responsibility forecast with his report only made these fears worse.
This led lenders to believe that the Bank of England would have to raise the base rate even faster and further than they already were. Gloomy expectations then combined with a run on the Government bond market to send long-term interest rates – like the ones on fixed-rate mortgages – spiralling upward.
Between the end of August and the end of October, the average 5-year fixed mortgage rate went from 3.6% to 5.6% – an increase that would cost the average borrower in Cardiff between £275 and £325 more per month.
While the cancellation of virtually every policy in Kwasi Kwarteng’s mini budget has led to a slight reversal of this increase, long-term interest rates remain significantly higher than they were in the summer.
Eventually, house prices are likely to fall to accommodate these hikes. In the meantime, however, families that are re-mortgaging are set to have to pay thousands of pounds more per year.
For many, especially when given that their budgets are already being squeezed by the cost-of-living crisis, this is simply unaffordable.
The story is similar in the Welsh private rental market, where monthly payments rose at a yearly rate of 3.2% in October – the fastest in the last decade. This means that the average renter of a Cardiff single bed apartment is paying between £20 and £30 more per month than they would have been last year.
In part, this is because landlords are having to pay more for their mortgages. This pressure is only likely to increase in the future, as more landlords are forced to remortgage at higher rates and tenants’ contracts come up for renegotiation.
There are also concerns about the quantity of private rental properties. While Rent Smart Wales, the Welsh Government’s rental information service, hasn’t seen any evidence that landlords are leaving the market, there are early warning signs.
In a recent survey of the Cardiff Landlord Forum, 40% had sold properties in the last two years and 63% planned to sell in the next five. As well as higher mortgage rates, landlords are also being reportedly put off by new legislation – namely, the Renting Homes (Wales) Act.
If this causes the number of available tenancies to fall, upward pressure on rents is only going to increase. The hope is that once the housing market adjusts to the interest rate changes, so will the rental one.
Until then, however, there’s likely to be a significant amount of pain and it’s important that anyone threatened by arrears reaches out to support services immediately.
