Study reveals how much more they need to pay as interest rates soar
The average homeowner looking to remortgage in the current market will pay over £23,000 more in interest over the lifetime of their new mortgage term, latest research by specialist property lender Octane Capital has revealed.
Today’s homebuyers also face paying almost £7,000 more in interest compared to those who secured a mortgage at the start of the month, due to mortgage rate increases over the past weeks.
The Bank of England raised the base rate last week – its 13th consecutive interest rate increase, bringing the base rate up to 5%. The rate climbed from a record low 0.1% in December 2021 to the highest level it has been since the economy was hit by the 2008 global financial crisis.
Moneyfacts has also reported that the average rate for a five-year fixed term mortgage now sits at 5.83%, up from 5.17% since the start of June.
Based on the current average house price of £286,489 and a 25-year term mortgage at a 75% loan-to-value, Octane Capital has found that the average homebuyer is now facing a monthly mortgage repayment of £1,362 or £85 per month more compared to the start of the month.
Over the lifetime of their five-year fixed mortgage term, this will see them pay £81,729, with £59,621 of this being interest on their mortgage at the current average rate of 5.83%. That equates to an increase of £6,998 in interest paid over the five years when compared to those who committed to the same mortgage at the start of June at the lower rate of 5.17%.
However, those looking to remortgage are the ones facing the biggest increase in their mortgage costs. Five years ago, the average homebuyer secured a five-year fixed term at an average rate of 1.99%. This saw them pay £725 per month or £43,505 over the five-year fixed term, with £15,704 of this total paid in interest.
Today, remortgaging to another five-year fixed term on the remaining mortgage balance of £143,465 at the average rate of 5.83% would see their average monthly mortgage repayment increase to £1,014 – a jump of £289 per month.
Despite borrowing less, the full cost of their mortgage during their second five-year term would also increase to £60,829 – a £17,324 jump. A significant £38,821 of this £60,829 will be paid in interest, meaning the interest paid on their second five-year term will increase by £23,117.
“Homebuyers are facing a notable increase in the cost of securing a mortgage as a result of increasing interest rates,” commented Jonathan Samuels (pictured), chief executive at Octane Capital. “This means they will be paying a substantially higher level of interest over their fixed term, while also paying less capital back on the value of their home.
“However, it’s those currently coming to the end of a fixed term who stand to see the biggest hike, having previously locked in a far lower rate. For those coming to the end of a five-year fixed term, the monthly cost of their mortgage is likely to increase by hundreds of pounds a month.
“Not only this, but the average homeowner will now be paying upwards of £23,000 more in interest over their second five-year term, despite their mortgage balance being less than when they originally purchased.”
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