Mortgage Rates and Mortgage Repayment terms rise
Mortgage Rates and Mortgage Repayment terms rise
Rising rates again dominated the mortgage market from late summer 2022, while enduring cost-of-living pressures helped propel longer-term fixed rate mortgages back into the limelight.
Bank of England mortgage rate rise
More than two million UK mortgage holders on variable or tracker mortgages are already facing higher mortgage repayments after the Bank of England’s Monetary Policy Committee raised its interest rate by 0.5% at the start of August 2022 to 2.25%.
Industry experts now estimate that around 40% of mortgages will go up over the next year, which will force millions into higher monthly payments. Even those currently shielded by a fixed-rate contract aren’t immune; most will end up paying more once their current deal ends.
Indeed, as the second half of 2021 fiscal data shows, although 74% of existing mortgage holders are on fixed-rate contracts, half of these will expire in the next 24 months (1). Good forward planning to find a good deal is now increasingly important as rates keep rising.
Challenges for First Time Buyers
New first-time buyers are especially vulnerable, as research revealed they are now spending an average of 40% of their gross salary on mortgage repayments, a level not seen since 2012. The average monthly cost is currently £1,030 (2), up from £976 before the latest Mortgage Rate hike.
Despite the negativity surrounding rates, however, the Bank of England does not fear a squeeze on households to such an extent as seen during the financial crisis of 2008.
Longer terms
Elsewhere in the market, the average length of a mortgage loan taken out by first time buyers hit 30 years in June (3), a record high and nearly five years longer than twenty years ago. More than one a third of first-time buyers opt for a mortgage between 30 and 35 years.
This average term could climb yet higher since the government is pondering ultra-long mortgage deals as a possible way to boost homeownership. Longer terms help more people achieve their property goals because a longer mortgage period allows larger sums to be borrowed. The need for clear financial advice has never been greater.
Yet calculations (4) have shown the staggering sums these mortgages could end up costing. For example, with a 75% loan-to-value mortgage, an average house price and an average long-term fixed rate of 6.19%, monthly repayments would stand at £1,140 – which would mean £472,984 paid in interest alone over a 50-year term!
The complex decision of which rate and which term will suit your circumstances the best and most importantly how to get should be discussed with an advisor you trust. I can help you understand all the benefits and pitfalls please contact me to arrange an o obligation discussion.
Back to basics
With cost-of-living pressures at the front of people’s minds, it can be hard to keep a level head when making big financial decisions. Regardless of short-term volatilities, however, the basics of homeownership remain the same.
Getting the right advice is more important than ever – and I am always here to help. Wherever your property goals take you, I will support you every step of the way. Please contact me for a no obligation discussion.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.
1 Financial Conduct Authority 2 Rightmove 3 UK Finance 4 Barrows and Forrester
