Over the last few weeks, one of the most common enquiries here at Revolution Finance Brokers has been about changes to mortgage payments and how the fifth rise in base rates by the Bank of England is impacting homeowners.
We've dived into the statistics to showcase some averages and demonstrate how the repayment values linked with a three-year mortgage on a fixed interest rate and a variable mortgage have changed in the last 12 months.
Average 2022 Variable Mortgage Costs
This time last year, base rates were 0.1%, and the average UK property sold for £265,809. Mortgage applications were typically made with a deposit of 15%, or around £39,871.
Lender's standard variable rates were 3.61%, representing a monthly repayment of £1,144.67, made up of a capital repayment of £464.77 against the mortgage balance and £679.90 in interest.
Breaking that down shows us that the average homeowner with a mortgage on a variable rate was paying a daily cost of £38.15 to purchase their home.
Average mortgage costs and interest rates were stable until December 2021, as the Bank of England base rate remained static.
From January, things began to change, and a series of base rate rises have increased variable rate averages to 4.91%.
The same homeowners are paying a higher £1,304.26 a month, or £43.38 daily.
These statistics reflect a one-year increase of 14%, adding £160 a month to the average household outgoings and £5.33 a day to repayment expenses.
Average Three-Year Fixed Mortgage Rates in 2022
The picture with fixed-rate mortgages is slightly different because the most competitive rate available in October 2021 was as low as 1.12% on a mortgage borrowed at 75% Loan to Value (i.e. with a 25% deposit).
In October, properties were selling for a £264,307 average, which meant homeowners would be paying approximately £757.89 locked in for the initial three-year period.
Fast-forward to April 2022, the average offered rate was 2.26%, increasing that monthly repayment value to £920.72.
For fixed rate borrowers, the increased cost is 21.5% higher, so a buyer today could expect to pay an additional £162.83 a month than if they had secured the same mortgage just under a year ago.
Managing Rising Mortgage Repayment Costs
There is no doubt that the ongoing crisis in living costs has stretched household budgets further than ever before, and the 1.15% bump in interest rates has affected every type of borrowing.
Although £5 a day seems like a reasonably painless increase, the overall costs add up to significant amounts and mean that borrowers should be cautious about applying for any financial products they may not be able to afford.
New homebuyers may also find that the higher costs of repaying fixed-rate mortgages mean they decide to limit their borrowing or opt for a smaller property or one in a more affordable area to match their budget.
Economists predict further increases to the base rate over the coming months, but the hope is that the market will stabilise as inflation peaks and slowly begins to revert.
If you are looking to buy a new property or remortgage your home, we strongly recommend seeking independent guidance to compare the options and pick a competitive mortgage with manageable repayment costs.
Please contact Revolution at your convenience if you require further help comparing mortgage rates and lenders or finding a mortgage product that aligns with your borrowing needs.
