According to a new analysis, homeowners face a £23,000 rise in interest payments after rates hit a 15-year high.
The average interest rate for a five-year fixed-term mortgage now sits at 5.83%, up from 5.17% since the start of June, Moneyfacts data shows.
According to an analysis by property lending experts Octane Capital, it means the average homebuyer looking for new five-year fixed mortgage faces possible interest payments of £23,000 over that period.
In 2018, the average homebuyer secured a five-year fixed term at an average rate of 1.99%, which saw them pay £725 per month or £43,505 over time, with £15,704 interest.
But if they’re looking to remortgage today on another five-year fixed term on the remaining balance, their average monthly mortgage repayment would jump by £289 per month.
The total cost of their mortgage during their second five-year term would jump to £60,829 – despite them borrowing less – with interest increasing by £23,117.
The report adds that based on the current average house price of £286,489 and a 25-year term mortgage at a 75% loan to value, the average homebuyer was facing a monthly mortgage repayment of £1,362 – a jump of £85 per month from the beginning of June.
The research follows recent warnings that 1.4 million mortgage holders will lose at least a fifth of their disposable income in additional repayments.
Impact on Homeowners
According to economists at the Resolution Foundation, they are set to rise by £2,900 for the average household remortgaging next year.
The average homeowner looking to remortgage in the current market will pay over £23,000 more in interest over the lifetime of their new mortgage term, the latest research by specialist property lender Octane Capital has revealed.
Today’s homebuyers also face paying almost £7,000 more in interest than those who secured a mortgage at the start of the month due to mortgage rate increases over the past weeks.
The Bank of England raised the base rate last week – its 13th consecutive interest rate increase, bringing the base rate up to 5%. The rate climbed from a record low of 0.1% in December 2021 to the highest level since the 2008 global financial crisis hit the economy.
Moneyfacts has also reported that the average rate for a five-year fixed-term mortgage now sits at 5.83%, up from 5.17% since the start of June.
Government Intervention and Support
Based on the current mode house price of £286,489 and a 25-year term mortgage at a 75% loan-to-value, Octane Capital has found that the average homebuyer is now facing a monthly mortgage repayment of £1,362 or £85 per month more compared to the start of the month.
Over the lifetime of their five-year fixed mortgage term, this will see them pay £81,729, with £59,621 of this being interest on their mortgage at the current average rate of 5.83%. That equates to an increase of £6,998 in interest paid over the five years compared to those who committed to the same mortgage at the start of June at the lower rate of 5.17%.
However, those looking to remortgage face the most significant increase in their mortgage costs. Five years ago, the average homebuyer secured a five-year fixed term at an average rate of 1.99%. This saw them pay £725 per month or £43,505 over the five-year fixed period, with £15,704 of this total paid in interest.
Public Response and Advocacy
Today, remortgaging to another five-year fixed term on the remaining mortgage balance of £143,465 at the average rate of 5.83% would see their average monthly mortgage repayment increase to £1,014 – a jump of £289 per month.
Despite borrowing less, the total cost of their mortgage during their second five-year term would also increase to £60,829 – a £17,324 jump. A significant £38,821 of this £60,829 will be paid in interest, meaning the interest paid on their second five-year term will increase by £23,117.
“Homebuyers are facing a notable increase in the cost of securing a mortgage due to increasing interest rates,” commented Jonathan Samuels (pictured), chief executive at Octane Capital. “This means they will be paying a substantially higher level of interest over their fixed term while also paying less capital back on the value of their home.
“However, those currently coming to the end of a fixed term stand to see the most significant hike, having previously locked in a far lower rate. For those coming to the end of a five-year fixed period, the monthly mortgage cost will likely increase by hundreds of pounds a month.
“Not only this, but the average homeowner will now be paying upwards of £23,000 more in interest over their second five-year term, despite their mortgage balance being less than when they originally purchased.”
