The average homebuyer can expect to pay £166 more per month as a result of the latest base rate increase by the Bank of England (BoE), but Octane Capital says this monthly repayment is expected to fall by £188 12 months from now. 

Octane Capital’s analysis was based on the cost of homeownership based on a variable rate mortgage at a 75% loan to value over a 25-year term. 

The research shows that 10 years ago the cost of a variable rate mortgage averaged £895 per month, with an average rate of just 4.29%. During this time, homebuyers paid £103,993 in interest on their purchase. 

The BoE base rate has remained at or below 1% since then until June of this year. 

With the base rate now increasing to 3%, the single largest increase in over 30 years, Octane Capital estimates that the average mortgage rate will increase to 6.34%. 

Homebuyers who opt for a variable rate mortgage can expect to pay £166 more per month than they were before this increase and £581 more than a decade ago, representing £220,980 in interest payable. 

However, Octane Capital forecasts that the average mortgage rate should fall to 4.93% 12 months from now.

If this were to happen, the average monthly repayment for homebuyers via a variable rate mortgage would reduce to £1,288 per month based on current property values, saving £188 compared to current market conditions. 

But this reduction could be greater should house prices fall during this time, Octane Capital highlights. 

Octane Capital chief executive Jonathan Samuels comments: “Opting for a variable rate mortgage will always be a gamble as it leaves you susceptible to an immediate change in the cost of your mortgage repayments depending on the base rate set by the Bank of England.”

“For many homebuyers, this gamble has largely paid off in recent years, with interest rates remaining at extreme lows for a prolonged period. However, so far in 2022 the cost of a variable rate mortgage has continued to climb in line with interest rates and last week we saw the largest single jump in over 30 years.”

“This will add a considerable amount to the monthly repayment of those opting for, or already on a variable rate and given the backdrop of the current cost of living crisis, it really couldn’t have come at a worse time.”

“The good news is that we do expect the economy to settle to some extent in 2023 and while we don’t believe we will see a return to the record levels of affordability enjoyed previously, the monthly cost of repaying a mortgage should drop below the levels currently being seen across the market.”