Could Mortgage payments drop 25%?

Monthly mortgage payments could fall by as much as a quarter by the end of 2023 says new research.

Wealth manager Quilter reports that an 80% LTV deal agreed in November 2022 at a 6% rate over 25 years would, taking into account the average property price of £294,910 at the time, cost £1,520 per month.

This represents a striking 66% increase on the £918 monthly payment for the equivalent deal a year earlier when interest rates were just 2% and house prices were 10.3% lower.

Looking ahead to the equivalent in November 2023, should house prices fall by 8% as Halifax recently predicted and mortgage rates continue their current downward trend to around 4%, the average UK house price could dip to £271,317 with monthly payments falling by 25% compared to a year earlier to £1,145.

Rising mortgage costs have been felt across the country, but some regions have been hit harder than others given the differing increases in house prices.

The North West of England, for example, saw a 13.5% increase in the average house price between November 2021 and November 2022. When combined with the 6% mortgage interest rates seen during November 2022 in the aftermath of the mini budget, the average monthly mortgage payment for someone with a loan to value of 80% increased by 70% year on year.

Those living in London saw the smallest percentage increase in monthly payments as house prices saw a much lower increase of 6.3% over the year to November 2022, though they were still up by some 58.6% to £2,796 a month.

With regards to the current picture, mortgage rates have seen a slight decline since the highs of 6% towards the end of last year, and they now sit around 4.55% on average.

Someone purchasing the current average UK house – which costs £294,910 according to the latest government house price index data – with an 80% loan to value and a 4.55% mortgage rate on a 25-year mortgage term could expect their monthly mortgage payments to cost £1,319. This is 13% less a month than the equivalent with a 6% interest rate.

“Rising mortgage rates have played a significant role in the affordability of buying a first home or moving home, and for many these costs were pushed to unaffordable highs,” said Karen Noye, mortgage expert at Quilter, adding:

“It is therefore a real positive that looking forward we can hope to see such a significant dip in monthly mortgage payments by the end of the year should house prices and mortgage rates continue to fall as expected.”