Monthly mortgage payments for new homeowners are forecast to drop by 25 per cent by the end of this year, if house prices and interest rates dip as expected.
The analysis by Quilter showed that homeowners who purchase their property towards the end of this year will be in a much better position than those who did so in the final quarter of 2022.
The combination of September’s "mini" Budget and a rising base rate in response to growing inflation, meant mortgage rates soared as lenders struggled to price products.
During that period, mortgage rates peaked at around 6 per cent for residential properties.
At the same time, according to the latest government house price index, the average UK house price in November 2022 sat at £294,910.
For those who purchased a property at this price with a mortgage term of 25 years on an 80 per cent loan-to-value ratio, their monthly mortgage repayments are currently £1,520.
Quilter highlighted that this is an increase of 66 per cent on the £918 monthly mortgage payment for the equivalent property and mortgage deal a year earlier when house prices were 10.3 per cent lower and interest rates sat at an average of 2 per cent.
If house prices fall by 8 per cent as Halifax recently predicted and mortgage rates continue on their downward trend to around 4 per cent, by November this year the average UK house price could fall to £271,317 with monthly payments falling by 25 per cent compared to a year previous to £1,145.
Quilter mortgage expert Karen Noye said this comes as a real positive following the impact rising rates have had on the affordability of buying a first home or moving house.
Avg. house price
Monthly mortgage payment** (2% interest)
Avg. house price
Monthly mortgage payment** (6% interest)
Avg. house price
Monthly mortgage payment** (4% interest)
* Based on Halifax prediction of 8 per cent house price decrease.**Monthly mortgage payment assumes 80 per cent LTV with a mortgage term of 25 years. Source: Government UK House Price Index: November 2022
However she noted that on a regional basis, some have been hit much harder by rising house prices and subsequent rising 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,” Noye said.
In the North West of England average house prices increased by 13.5 per cent in the year up to November 2022.
Combined with the 6 per cent mortgage rates seen during November 2022, the average monthly mortgage payment for someone with a loan-to-value of 80 per cent increased by 70 per cent.
Those living in London saw the smallest percentage increase in monthly payments as house prices saw a much lower increase of 6.3 per cent over the year to November 2022. However, this still meant an increase of 58.6 per cent to £,2796 a month.
Noye tempered that the positive projection with a warning that there is no guarantee that changes in the housing market will materialise as predicted.
Noye said: “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.