Monthly mortgage payments may drop by 25 percent within the next 12 months, according to research carried out by Quilter. This comes after the latest Government house price index data showed that the average UK property cost £294,910 in November 2022. Interest rates have risen dramatically within the last year as the Bank of England has hiked the base rate in an attempt to mitigate the impact of inflation.
Mortgage rates for homeowners peaked at six percent in the aftermath of the disastrous mini-budget from former Prime Minister Liz Truss’ government.
Anyone who bought a property at this price of £294,910 and mortgage rate with a term of 25 years, with a 80 percent loan to value ratio, will be facing a monthly mortgage payment of £1,520.
This represents a 66 percent increase on the £918 a month mortgage payment for the equivalent property and mortgage deal the year before.
With experts looking ahead to November 2023, if house prices were to drop by eight percent as Halifax forecast and mortgage rates continue on their current downward trend to around four percent, the average UK house price could dip to £271,317.
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As a result, monthly mortgage payments would decrease by 25 percent compared to a year before to £1,145.
In light of this, if these forecasts are correct, November 2023 will be a “real positive” for homeowners and may incentivize people into buying a new property.
Karen Noye, a mortgage expert at Quilter, broke down what households could potentially expect to happen later in the year.
She explained: “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.
“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.”
According to the mortgage expert, certain areas in the UK have been worse hit by soaring house prices and the resulting mortgage payment hikes following the Bank of England’s recent intervention.
Overall, the North West of England has witnessed the most significant increase in monthly payments within the last year.
In comparison, residents in London have seen the smallest hikes in terms of percentage increase over this period of time.
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However, those living in the UK’s capital are still left paying massive mortgage payments as the costs were already extremely high.
As it stands, the country’s base rate is at 3.5 percent which has caused interest rates and mortgage payments to skyrocket as a result.
With inflation showing signs of slowing down, homeowners will be hoping mortgage rates will follow suit in the coming months.
Ms Noye added: “However, there is no guarantee that the changes in the housing market will materialise in the way that has been predicted.
“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.
“Lower inflation should mean interest rates stabilise and even start to drop with mortgage rates following suit.
“This could result in mortgage rates dropping to four percent by the end of the year and potentially even lower in the future which will have a real impact on monthly mortgage costs, particularly for those on variable rate mortgages, and could see more people considering buying a new home as the prospect becomes more affordable.
“The last few years have shown just how unpredictable the housing market really is, but with hope we are now out the other side of what has been a hugely turbulent few years and we will gradually see a levelling out in terms of rising costs.”