MortgagesAug 3 2022

Buyers and sellers face eye-watering price increases

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Buyers and sellers face eye-watering price increases
Photo montage by Monstera via Pexels

Britons are facing rising costs relating to property purchases and sales, with brokers warning clients to make allowances for mortgage payment hikes as well as higher costs when selling a home. 

According to broker Almas Uddin, founder of Revolution Brokers, there have been "significant" payment increases in the average monthly mortgage repayment.

His analysis of data from the Building Societies Association found a national increase of just over £70 a month. 

In some parts of the UK, the increase is £90 or even £120 a month, his research found (see table, below).

According to Uddin, this means "hundreds of thousands of households" face even greater squeezes in the coming months as the Bank of England raises rates to combat soaring inflation.

The coming months could be very difficult for the average homeowner.Uddin

He said: "A national increase of more than £70 per month means that hundreds of thousands of households will have seen their disposable income squeezed even further, during what is already a very tough time."

Revolution Brokers looked at the increasing cost of a mortgage based on variable rate mortgages taken out in December 2021 and the changing cost based on increasing rates versus the remaining loan left to pay.

Back in December 2021, the average house price paid by a mortgage-backed homebuyer was £282,038.

After putting down the average UK deposit of 15 per cent (£42,306), they were taking out mortgages to the tune of £239,732.

With an average mortgage rate of 3.61 per cent, Revolution Brokers said this meant the average homebuyer using a standard variable mortgage paid £1,214.35 a month. 

However, in the months since, the base rate has increased by 1 per cent, pushing the average mortgage rate up to 4.25 per cent. The MPC has also indicated rates could hit 2 per cent in 2023.

As a result, monthly payments on the average variable rate mortgage have increased by £71.50 to £1,285.85. 

Table: The change in monthly mortgage repayments (standard variable rate) between Dec 21 and May 22

LocationMortgage average house price - Dec 2021Average deposit at 15% (Dec 2021)Full monthly repayment - Dec 2021Full monthly repayment - May 2022Difference £
London£508,713£76,307£2,190.32£2,319.29£128.97
South East£378,689£56,803£1,630.49£1,726.49£96.00
East of England£343,309£51,496£1,478.15£1,565.19£87.04
South West£308,304£46,246£1,327.44£1,405.60£78.16
West Midlands Region£239,045£35,857£1,029.23£1,089.84£60.60
East Midlands£235,149£35,272£1,012.46£1,072.07£59.61
North West£207,918£31,188£895.21£947.92£52.71
Wales£207,181£31,077£892.04£944.57£52.52
Yorkshire and The Humber£197,319£29,598£849.58£899.60£50.02
Scotland£184,996£27,749£796.52£843.42£46.90
North East£155,850£23,377£671.03£710.54£39.51
England£297,264£44,590£1,279.90£1,355.27£75.36
Great Britain£282,038£42,306£1,214.35£1,285.85£71.50

Source: BSA/Revolution

According to Revolution Brokers, the biggest regional increase has been seen in London where payments have increased by an average of £128.97 per month. 

Uddin added: "Variable rate mortgages always come with a modicum of risk as it’s difficult, sometimes impossible, to predict what economic ups and downs are on the horizon.

"The coming months could be very difficult for the average homeowner, as interest rates look set to keep rising, putting even further pressure on our finances in the process.”

But it is not just borrowers facing higher costs: purchasing specialist the House Buyer Bureau has revealed the nation’s home sellers are now paying £793 more in estate agent commission when selling their home.

There are a whole host of costs involved in selling a home, above and beyond the fee paid to your selling agent.Chris Hodgkinson, House Buyer Bureau

Research by the HBB showed that, at the end of December and prior to the outbreak of Covid-19, the average estate agent bagged £3,771 in commission. 

Fast forward to today and a pandemic property market boom has seen the average house price in England climb by 22 per cent.

As a result, the average home seller is now paying £4,564 in estate agent fees, an increase of £793 despite a marginally lower fee of 1.51 per cent versus 1.52 per cent in December 2019. 

Managing director of House Buyer Bureau Chris Hodgkinson commented: “There are a whole host of costs involved in selling a home, above and beyond the fee paid to your selling agent.

"However, these tend to be fixed and remain largely unchanged regardless of wider market performance. 

"The fee charged by a selling agent, on the other hand, changes depending on the value of the home being sold.

"So while homeowners have enjoyed some pretty high and sustained rates of house price growth during the pandemic, the same increase in the value of their home will cost them a fair bit more if they do decide to sell up.”

Background

The rising cost of servicing mortgages has already caught the attention of the regulator.

Earlier this week (Tuesday 8), the Financial Conduct Authority issued a note encouraging mortgage borrowers to consider switching as some could save an average of £1,240 each year by doing so.

In its Switching in the Mortgage Market update, the FCA said approximately 370,000 borrowers (4 per cent) could make a saving by changing to a 2-year fixed rate with their existing lender.

As reported by FTAdviser, the FCA said the number of mortgage borrowers not switching their mortgage deal, when they could save money by doing so, has declined significantly since 2016. 

It commented: “We do not see the same poor pricing practices that used to be prevalent in the general insurance markets, where pricing was opaque and loyal customers could face dramatic price increases over time as a result of price walking."

simoney.kyriakou@ft.com