Rates and repayment lengths rise
Rising rates again dominated the mortgage market in August, while
enduring cost-of-living pressures helped propel longer-term fixes back
into the limelight.
Bank rise
More than two million mortgage holders on variable or tracker mortgages are
already facing higher repayments after the Bank of England’s Monetary Policy
Committee voted to raise its main interest rate by 0.5% at the start of August.
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 H2 2021 data show, although 74% of existing mortgage holders are
on fixed-rate contracts, half of these will expire in the next 24 months 1 . Forward
planning to find a good deal will become increasingly important if rates keep
rising.
Challenges for FTBs (First Time Buyers)
New first-time buyers (FTB) 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 Bank 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
FTBs hit 30 years in June 3 , a record high and nearly five years longer than two
decades previously. More than one in three FTBs opted 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. Long
terms help more people achieve their property goals because a longer mortgage
period allows larger sums to be borrowed.
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!
©Stonebridge
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 we’re always here to
help. Wherever your property goals take you, we can support you every step of
the way.
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