Monthly mortgage payments could fall by around 25% by the end of the year, new research from Quilter shows.

The latest government house price index data shows that in November last year, the average UK property cost £294,910.

During the same period, mortgage rates peaked at around 6% in the aftermath of the mini-budget.

Quilter explains that those who purchased a property at this price and mortgage rate with a term of 25 years and an 80% loan-to-value (LTV) ratio will face a monthly mortgage payment of £1,520.

This represents a 66% increase on the £918 monthly mortgage payment for the equivalent property and mortgage deal a year earlier when interest rates were just 2% and house prices were 10.3% lower.

Should house prices fall by 8% as Halifax recently predicted and mortgage rates continue on their current downward trend to around 4%, Quilter predicts that by November 2023 the average UK house price could dip to £271,317 with monthly payments falling by 25% compared to a year earlier to £1,145.

While various factors will impact the exact amount that mortgage payments will fall by, including the LTV level, the cost of the property, and the mortgage term length, Quilter suggests that homeowners could see a significant dip in monthly costs across the board by the end of the year should mortgage rates fall.

House prices have soared in the last two years, and while there looks to be a slowdown materialising, prices remain incredibly high and rising mortgage rates have pushed costs up even higher.

Quilter says some regions have been hit harder than others given the differing increases in house prices.

The North West of England saw a 13.5% increase in the average house price between November 2021 and November 2022.

When combined with the 6% mortgage interest rates seen during November 2022 in the aftermath of the mini-budget, the average monthly mortgage payment for someone with an LTV of 80% increased by 70% year on year.

Those living in London saw the smallest percentage increase in monthly payments as house prices saw a much lower increase of 6.3% over the year to November 2022.

However, they were still up by 58.6% to £2,796 a month.

Mortgage rates have seen a slight decline since the highs of 6% towards the end of last year, and they now sit around 4.55% on average.

Quilter explains that someone purchasing the current average UK house – which costs £294,910 according to the latest government house price index data – with an 80% LTV and a 4.55% mortgage rate on a 25-year mortgage term, could expect their monthly mortgage payments to cost £1,319.

This is 13% less a month than the equivalent with a 6% interest rate.

Commenting on this, Quilter mortgage expert Karen Noye says: “Rising mortgage rates have played a significant role in the affordability of buying a first home or moving home, and for many these costs were pushed to unaffordable highs. It is therefore a real positive that looking forward we can hope to see such a significant dip in monthly mortgage payments by the end of the year should house prices and mortgage rates continue to fall as expected.”

“On a regional basis, some have been hit much harder by rising house prices and subsequent mortgage costs than others. The North West of England has seen the most significant rise in monthly payments, while those in London have seen the smallest rise in terms of percentage increase, but are still left paying huge mortgage bills as the costs were already so high.”

“However, there is no guarantee that the changes in the housing market will materialise in the way that has been predicted. Inflation is still incredibly high and people’s buying power has taken a real hit as a result, particularly with rising energy bills, but thankfully we look to now be moving past the peak.”

“Lower inflation should mean interest rates stabilise and even start to drop with mortgage rates following suit. This could result in mortgage rates dropping to 4% by the end of the year and potentially even lower in the future which will have a real impact on monthly mortgage costs, particularly for those on variable rate mortgages, and could see more people considering buying a new home as the prospect becomes more affordable.”

“The last few years have shown just how unpredictable the housing market really is, but with hope we are now out the other side of what has been a hugely turbulent few years and we will gradually see a levelling out in terms of rising costs.”