Mortgage costs ease for homebuyers
New research from upfront information platform, Home Sale Pack, reveals that whilst the cost of a mortgage has started to ease, the average monthly mortgage repayment today is 57.4% more expensive than it was in December 2021 when interest rates first started to climb. However, there are ways in which mortgages can be made more manageable for those struggling with the continued high cost.
Home Sale Pack has analysed the average monthly repayment costs on a 2-year fixed-rate 85% LTV mortgage looking at the current cost to homebuyers and how this has changed since interest rates first started to climb in December 2021.
In December 2021, the average UK house price was £266,170*. With a typical 15% deposit coming to £39,926, this means the average mortgage loan required was £226,245. At the time, the average mortgage rate for a 2-year fixed-rate 85% LTV mortgage was 1.71%*. Over 25 years, this means the average monthly repayment cost came to £927.
But then interest rates started to skyrocket which also caused mortgage rates to climb. Fast forward to July 2023 and the average mortgage rate for a 2-year fixed-rate mortgage (85% LTV) peaked at 6.35% - 4.64% higher than in December 2021.
With the average house price also increasing to £282,982, meaning the average mortgage loan size was £240,535, this pushed average monthly mortgage repayment to £1,602, an increase of 73% since December 2021.
Today, mortgage rates have started to ease and currently sit at an average of 5.3%. However, the average house price has also increased since July 2023 to currently stand at £285,201.
As such, the average monthly mortgage repayment is now £1,460.
This is -9% cheaper than it was versus the peak seen in July 2023, but still 57.4% more expensive than December 2021.
So while homeowners and prospective buyers will be pleased to see costs falling, the situation remains far from comfortable with mortgage costs still considerably inflated.
5 ways to make your mortgage more affordable
There are a few methods you can consider for making your mortgage costs more manageable:
Make overpayments
If you're on a low-rate fixed deal that will soon expire, use this time to overpay your mortgage if you can afford to, so that when your fixed-rate term ends, you've got less debt to pay at what will likely be a higher interest rate. NOTE - Most lenders allow overpaying, but some may issue penalties for doing so. Be sure to check with your provider.
Check your current rate
The most costly mistake that many people make is staying on their standard variable rate (SVR) deal after their introductory rate period has expired. Check your rate, and if you're on an SVR, consider remortgaging onto a new, more affordable deal.
Extend your mortgage period
The typical mortgage term is 25 years, but if you want to reduce your monthly repayments, you might want to consider extending your term to 30 or even 40 years. This will reduce monthly costs, but may result in you paying more interest over time.
Offset mortgage
An offset mortgage allows you to use your existing savings to reduce the amount of interest you're charged for a mortgage. So, if you have a decent amount of money in a savings account that you don't want to tie up in property, an offset mortgage could still make that money work in your favour by reducing the cost of your mortgage.
Consider an interest-only mortgage
You can reduce monthly repayments by opting for an interest-only mortgage which means you only have to pay the interest on your loan each month. This makes it more affordable, but also means you're not paying off any of your debt. The idea is that you will eventually pay off the debt when you sell the property for more money than you originally paid for it. This option should be considered a last resort when struggling to keep up with monthly mortgage repayments.
Ruth Beeton, Co-Founder of Home Sale Pack, says:
"The falling cost of mortgages is good news, but it's not great news because today's mortgages are still considerably more expensive than those of 2021. Sadly, this might be a new norm we're stuck with for many years to come due to increased interest rates after years of historically low rates.
However, there are a number of ways in which you can make a mortgage more affordable and more manageable. But please do act with caution and make decisions based on advice from financial experts when you can."
