The cost of mortgages has risen by 57% – five tips to lower your payments from the experts

The cost of repayments on new home loans is typically 57% higher than in 2021, when banks and building societies were engaged in a mortgage price war. The financial giants have cut interest rates in recent weeks, yet repayments remain very high compared to less than three years ago.

New research from upstart insights platform Home Sale Pack includes a model that shows the real-life impact of change on homebuyers. It found that in December 2021 the average UK house price was £266,170. Based on a typical 15% deposit, which equates to £39,926, a buyer would need a mortgage of £226,245.

At the time, the average interest rate for an 85 percent 2-year fixed rate mortgage was 1.71 percent. This resulted in monthly repayments of £927 over a 25 year loan. Interest rates subsequently exploded to a peak of 6.35 per cent on a 2-year fix in July 2023. Taking into account an increase in the average house price to £282,982 and a mortgage of £240,535, repayments monthly would have increased to 1,602 pounds. it was a punishing 73 percent increase.

Looking now to July 2024, the average mortgage rate has dropped to 5.3 percent. However, this has been partly offset by the fact that the average house price has increased since July 2023, currently standing at £285,201. Based on the same home loan scenario, repayments come to £1,460, which is 57.4% higher than the December 2021 low.

The company said: “While home owners and potential buyers will be pleased to see costs falling, the situation remains far from comfortable, with mortgage costs still considerably inflated.”

Ruth Beeton, co-founder of Home Sale Pack, commented: “The fall in the cost of mortgages is good news, but not great news as mortgages today are still considerably more expensive than they were in 2021. Unfortunately, this would it could be a new norm that we have. We are locked in for many years to come from rising interest rates after years of historically low rates.”

“However, there are a number of ways you can make a mortgage more affordable and manageable. But please proceed with caution and take decisions based on the advice of financial experts when you can.”

You make overpayments

If you have a low-rate fixed-rate deal that’s about to expire, use that time to overpay your mortgage if you can afford it, so that when the fixed-rate term ends, you you have less debt to pay on what will likely be a higher interest rate. Most lenders allow overpayment, but some may issue penalties for doing so. Be sure to check with your supplier.

Check the current rate

The most expensive mistake many people make is staying on their Standard Variable Offer (SVR) after the rate introduction period has expired. Check your rate and if you’re on an SVR, consider remortgaging on a new, more affordable deal.

Extend your mortgage term

The standard mortgage term is 25 years, but if you want to lower your monthly payments, we recommend extending your term to 30 or even 40 years. This will lower your monthly expenses, but may result in you paying more interest in the long run.

Offset mortgage

An offset mortgage allows you to use your current savings to reduce the amount of interest you charge on a mortgage loan. So if you have a substantial amount in a savings account that you don’t want to invest in property, an offset mortgage could still allow that money to benefit you by lowering the cost of your mortgage.

Consider an interest-only mortgage

You can lower your monthly payments by choosing an interest-only mortgage, which means you only have to pay the interest on the loan each month. This makes it more affordable, but it also means you’re not reducing any debt. The plan is that you will eventually clear the debt when you sell the property for more than you originally paid for it. This option should be seen as a last resort when it is difficult to manage the monthly mortgage repayments.