One of the biggest “cost of living” issues facing people across the UK is the rise in mortgage payments.
To combat high inflation, the Bank of England (BoE) has raised the base interest rate 11 times since the end of 2021, with the rate now standing at 4.25%, up from just 0.1% in November 2021.
Consequently, new analysis by the Office for National Statistics (ONS) reveals that the cost of a mortgage for the average three-bed semi-detached home in the UK rose by a staggering 61% in the year to December 2022.
According to a report in Mortgage Strategy this means that almost 1 in 2 households are concerned about being able to keep up with mortgage and rent payments over the next year.
Read on to discover just how sharply rates have risen, and for some useful tips if you are expecting a hike in your mortgage repayments in the next few months.
Mortgage rates have risen sharply since December 2021
Over the last year, mortgage rates have risen sharply. The main reason is that the BoE have increased the base interest rate in an attempt to bring down inflation – the theory goes that encouraging households to save rather than spend reduces demand for goods and services and thus slows price rises.
In addition, the failed “mini-Budget” of September 2022 saw the cost of borrowing rise sharply, although this has fallen back a little since then.
The chart below shows the average quoted mortgage rate for a five-year fixed mortgage at a 75% loan-to-value. You can see that rates have risen sharply in the last year, to levels last seen during the global financial crisis of 2008/9.
Source: Office for National Statistics
If you’re on a fixed-, discounted- or tracker-rate deal with a year or more to run, then this won’t immediately affect you. You’ll continue to make your agreed repayments until your fixed-rate deal ends.
However, if your deal is set to end in the next few months, you will likely have to prepare for a jump in your borrowing costs. Indeed, the ONS report that more than 1.4 million households in the UK are facing the prospect of interest rate increases when they renew their fixed-rate mortgages in 2023.
Mortgage repayments up 61% in the year to December 2022
In December 2021, the average mortgage rate on offer for a five-year fixed-rate mortgage at a loan-to-value of 75% was 1.59%. The average UK semi-detached property price was £258,000.
Fast forward a year, to December 2022, and the average equivalent mortgage rate offered by lenders was 5.05%. The average UK semi-detached property price was £286,000.
In December 2022, the ONS say this means the monthly mortgage repayment for purchasing a semi-detached property in the UK was £1,262, based on the average five-year fixed rate and a term of 25 years. This is a £481 (61%) increase in the monthly repayment compared to December 2021.
If you wanted to buy the average detached UK property on the same terms in December 2022, your monthly mortgage repayment would be £2,041 – up by 60.7% on December 2021.
The charts below show the indicative monthly mortgage payment for average-priced properties in the UK assuming average five-year fixed-rate mortgage offer over 25 years at a 75% loan-to-value.
Source: Office for National Statistics
So, if you’re facing a hike in your repayments, what can you do? Here are three tips.
3 tips if you’re facing increased mortgage repayments
1. Shop around
When your mortgage deal is coming to an end, your lender is likely to contact you and offer you a “loyalty” deal to stay with them.
While this may look appealing, you should always shop around before you accept any such deal. There may well be significantly better and more suitable products in the market, which could help you to reduce your repayments and pay less interest.
We can help you to find a deal – read tip three below.
2. Repay some of your mortgage to secure a better deal
When you come to negotiate a new mortgage deal, the loan-to-value will determine the products you are eligible for.
In general terms, the lower the loan-to-value, the lower the cost of a mortgage deal.
So, if you’re able to repay part of your mortgage to reduce your loan-to-value, this could help you to source better terms. As a simple example, if your current loan-to-value is 76%, reducing this to 75% by repaying a small amount may well give you access to cheaper deals that could save you a lot in the long term.
3. Speak to an expert
With thousands of mortgage deals on the market, including many offered by lenders that don’t deal directly with consumers, it can be hard to find the most appropriate deal for you.
We can help. We work with dozens of lenders and can search the market for you to find the most competitive deal. We can also discuss your application with lenders – for example, if your circumstances have changed since you took out your original mortgage.
Get in touch
With mortgage repayments having risen sharply in the last year, it’s important to be prepared if you’re looking for a new home loan.
If your deal is coming to an end in the next six to eight months, get in touch with us now so we can start putting the right arrangements in place for you.
Email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
