Homebuyers feel the squeeze of the Bank of England's rate hikes
Homebuyers looking to purchase in today’s market are paying as much as nearly 60% more on the monthly cost of repaying a mortgage when compared to those who purchased in December 2021, when interest rates first started to climb.
This was revealed in the latest research by the property purchasing specialist, House Buyer Bureau, when it analysed the current cost of a mortgage across a range of the most common products available to homebuyers and how this cost has changed when compared to the rates available at the end of 2021.
Chris Hodgkinson (pictured), managing director at House Buyer Bureau, commented: “Since the Bank of England began to increase interest rates, homebuyers have seen the cost of borrowing climb and the average monthly mortgage repayment is now considerably more expensive, at a time when households are already stretched extremely thin.”
The research showed that, today, a homebuyer opting for a two-year fixed rate mortgage with a 95% loan-to-value (LTV) would predictably pay the highest price to get a foot on the ladder. With an average rate of 6.11%, the monthly cost of repaying this mortgage came in at £1,793 per month, having increased by 52.2%, or £615 per month, since December 2021.
Read more: What are the types of mortgage in the UK?
House Buyer Bureau, however, noted that it’s those opting for a two-year fixed rate at 75% LTV who would have seen the largest percentage increase in the cost of their monthly repayment. Back in December 2021, choosing a two-year fix at a rate of 1.57% would have seen buyers repaying £811 per month. Today, the same mortgage would require a monthly repayment of £1,292 at the current rate of 5.17% – a 59.4% increase, meaning buyers were now paying £481 more per month.
Those going for a three-year fix at the same 75% LTV would also be paying 58.9% more per month at the current rate of 3.54% versus December 2021 – an increase of £468 on the monthly cost of repaying their mortgage.
Despite the Bank of England’s string of 11 consecutive interest rate hikes, House Buyer Bureau said that it was those purchasing on a standard variable rate who have had best in the current market, with the average rate having increased from 3.61% in December 2021 to 6.66% today. While this has pushed the average monthly repayment to £1,489, it’s the smallest increase, up 46.2% or £471 per month.
Hodgkinson explained: “This has predictably had an impact on the wider market, with buyers no longer able to match the high asking price expectations seen throughout the pandemic boom.
“As a result, house prices have cooled and, in many cases, buyers have had to reassess their position in the market having already made an offer. This has led to a higher degree of market uncertainty, and while we don’t anticipate any drastic reduction in property values as a result, it’s certainly a much trickier landscape for both buyer and seller at present.”
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