Homebuyers coming to the end of a three-year mortgage term over the next year are set to see the costs of their average monthly repayments climb by over £300 a month, according to Octane Capital.
The study by the specialist lender comes after combined market fears that the Bank of England base rate may jump by as much as 6% next spring from 2.25% currently — and house prices stall, or even fall by as much as 5% over the coming months.
It comes after the amount of mortgage products on the market fell by 41% to 2,273 last week, as firms pull products and work out how to reprice them as the cost of debt for the government and companies rose on international money markets, following Chancellor Kwasi Kwarteng’s tax-cutting mini-Budget earlier this month.
Octane Capital says for a new buyer, based on the current average rate for a three-year fixed-term product at a 75% loan to value in today’s market would rack up a monthly repayment of £1,125, based on an average mortgage rate of 3.74% on the current average house price of £219,089.
It adds, should the average mortgage rate climb to 6% in 2023 and house prices also dip by 5% to £208,134 as some analysts forecast, the average homebuyer would face £1,341 in monthly repayments, or £216 more than they would if they were purchasing a property in the current market.
But if house prices remain stagnant at £129,089, an average rate of 6% would see a property purchase in 2023 require a £1,412 monthly repayment, which is £286 more per month than the current cost of borrowing.
The specialist lender points out that for existing homeowners approaching the end of a three-year fixed-term loan, the difference between remortgaging now and next year “could make a substantial difference to their monthly payments”.
It says in August 2019, the average rate of 1.73% for a three-year fix at a 75% LTV, would have required the average homebuyer to repay £719 per month based on the average house price of £233,366, which is £406 less than those looking to buying today.
The firm adds that homeowners currently approaching their renewal date in 2022 would have cleared over £17,000 from the sum owed on their mortgage, the current rate of 3.74% applied to the remaining £157,792 would still see them pay £810 per month, an increase of £91 on their original monthly repayment costs.
But the lender says homeowners who are due to renew their three-year fix next year will face a higher average monthly repayment of £1,043 per month. This is a £298 increase on their previous monthly repayment costs, despite having cleared £11,521 off their original mortgage since August last year.
Octane Capital chief executive Jonathan Samuels says: “It’s been a very chaotic few weeks for the mortgage market and this unsettled landscape looks set to remain for the foreseeable future as the threat of further interest rate hikes looms large.
“Those looking to lock in a three-year fixed-term offer today will be facing considerably higher repayment rates compared to three years ago, with the average repayment now over £400 more per month.
“Despite this, those considering a purchase are best advised to do so now, as sitting on the fence could see you paying between £200 and £300 more a month come next year, with mortgage rates forecast to hit six per cent.
“For those approaching the end of their three-year fixed-term loan, now is also the time to lock in a fresh deal. Currently doing so will see you pay around £90 more a month but this cost is set to climb to almost £300 more per month for those due to renew next year.”
