Factors influencing your overall mortgage payment and how much you might anticipate budgeting per month for repayments.
While looking at indicative mortgage rates online is not complex, understanding exactly what that mortgage product will cost you is!There are dozens of different types of mortgages, repayment options, product terms, and interest rate calculations to get to grips with.
If you have ever spent hours nurturing a headache on a price comparison site, you will appreciate that the numerous variables, and potential for additional application fees, can make it pretty impossible to make a clear judgement about which mortgage products are the most affordable.
In this guide, Think Plutus breaks down average mortgage costs into manageable chunks, explaining the factors influencing your overall mortgage payment and how much you might anticipate budgeting per month for repayments.
Average Mortgage Interest Rates
Mortgage rates rarely conform to a consistent rates table across lenders.
Every mortgage provider will have offers, promotions and decide on interest rates depending on the circ*mstances of your application.
However, while we cannot tell you precisely what your mortgage interest rate will be (without learning a little more), we can illustrate the UK averages across some more popular products.
The table below sets out this data, with the Loan to Value percentage shown – this metric is the amount you are borrowing against the property value, so a 75% LTV means you have contributed a 25% deposit.
| Mortgage Product | Loan to Value | Average Mortgage Interest Rate - September 2023 | Average Mortgage Interest Rate - October 2022 | Average Mortgage Interest Rate - October 2021 |
|---|---|---|---|---|
| Two-year fixed-rate mortgage | 95% | 6.75% | 6.44% | 2.98% |
| Two-year fixed-rate mortgage | 75% | 5.94% | 6.01% | 1.29% |
| Three-year fixed-rate mortgage | 75% | 5.78% | 5.90% | 1.12% |
| Standard Variable Rate mortgage | N/A | 7.93% | 5.42% | 3.6% |
Source: Building Societies Association
Lenders will not necessarily offer these exact interest rates because the assessment process includes looking at:
- Credit reports and credit scoring.
- The value of the property and any non-standard construction considerations.
- Salary/Income, employment status and debt.
- The deposit you have available.
- Duration of the mortgage (or the term, which we will explain next).
It is important to note that these mortgage interest rate averages were published in October 2023.
The Monetary Policy Committee (MPC) most recently opted to maintain theBank of England base rateat 5.25% (September 2023).
The Average Mortgage Term
Mortgage terms on conventional residential mortgages tend to be 25 years, although you can apply for a much shorter or longer period.
The shortest mortgages can run for just six months and the longest up to around 40 years, so there is a fair amount of scope to amend your monthly repayments.
Longer mortgage terms have positives and negatives:
- Stretching out the repayments for longer will mean that your monthly repayment amount drops.
- The pitfall is that the repayments will cost more over the lifetime of the mortgage.
Housing prices have risenenormouslysince the pandemic in 2020 although they have since stabilised to a certain extent. Therefore we have seen a surge in mortgage applications looking for an extended term to improve their affordability.
The government’s UK House Price Index reports on average property sales values and how these have changed in the last 12 months:
Average Price by Property Type in United Kingdom
| Property Type | Average Price in August 2023 | Average Price in August 2022 | Percentage Change |
|---|---|---|---|
| Detached house | £458,000 | £454,000 | +0.8% |
| Semi-detached house | £283,000 | £281,000 | +0.9% |
| Terraced house | £237,000 | £239,000 | -0.9% |
| Maisonette or flat | £233,000 | £233,000 | 0% |
Overall, the average UK home now costs £291,000 based on August 2023 figures and will cost you 0.2% more than last year.
In England the average price of a property in England was £310,000 in August 2023, the same as last year.
Higher house prices inevitably make it harder for people to buy a larger property as their needs change or for first-time buyers to secure their first home.
Several government schemes such as the 95% Mortgage Guarantee Scheme, and Shared Ownership may be beneficial if you cannot feasibly save the required deposit.
How Much is the Average Monthly Mortgage Cost?
Most residential mortgages are repayment products, and that means you pay a proportion of the capital back each month, plus the interest.
An interest-only loan is primarily used in rental property mortgages, so we will focus on repayment mortgages.
As of July 2023,Finderreports that:
- The average UK monthly mortgage repayment is £665 – exceeding the average rental cost.
- Average interest rates for a two-year fixed-rate mortgage was 6.32% in June 2023, based on a 5% deposit, or 95% LTV.
- Buying a property in London now costs 13.3 times the average annual salary.
- The average mortgage borrowing taken out during 2023 thus far is £184,376.
While buying a home will cost an average of £665 a month, these statistics also vary considerably depending on the size and location of the property. For example, the average monthly mortgage payment on a semi-detached home was £1,262 in December 2022; 62% above the previous year. However this does not take into account equity (cash / deposit) tied up in the property or maintenance costs.
Statista compares the monthly averages between regions, although these most recent metrics refer to 2021:
| Region | Average Monthly Mortgage Cost - 2021 |
|---|---|
| Greater London | £1,355 |
| South East England | £1,025 |
| South West England | £804 |
| East Anglia | £758 |
| West Midlands | £660 |
| East Midlands | £654 |
| North West England | £617 |
| Wales | £596 |
| Yorkshire and the Humber | £561 |
| Scotland | £548 |
| North of England | £494 |
| Northern Ireland | £476 |
Ways to Reduce Your Monthly Mortgage Repayments
We mentioned interest-only mortgages earlier, and this type of product is certainly much more affordable when comparing the monthly payments.
However, the issue is that interest-only mortgages do not include any element of the original amount borrowed. When you arrive at the end of the term, you still owe the lender the full amount and need to demonstrate how you plan to pay this back at the point of application.
Exit strategies can include selling the home or refinancing.
An interest-only mortgage might reduce your monthly mortgage payment, but is usually more expensive when you add the interest payments made over the term and the final balance payable.
A larger deposit will immediately decrease your interest rate because the lender’s risk is mitigated, as they are considering a lower LTV on the property.
Options to boost your deposit value include:
- Gifted deposits or contributions from family members.
- Applying for a equity loan scheme.
- Delaying your purchase to enable you to save more.
Extending the loan term is another option, which means that the monthly repayments will drop the longer the mortgage remains active.
Some mortgage lenders offer flexibility with repayments, so you can overpay or underpay, although there may be restrictions on how often you can do so per year.
If you have this option and can overpay, you will chip away at the total interest payable and bring down your monthly cost.
Comparing the Average Mortgage Cost Including Interest
Adding up the cost of a mortgage over the full term can be daunting, but it is essential to go into any long-term financial decision equipped with as much knowledge as possible.
Based on the UK average property price of £291,000 and applying the average mortgage interest rates, we can get a rough idea of the overall repayments depending on the length of the term and deposit available.
| Mortgage Interest Rate | Mortgage | Total Repayment Including Interest* | Monthly Repayment |
|---|---|---|---|
| 5.94% - 25 years with a 25% deposit | £218,250 | £419,291 | £1,398 |
| 5.94% - 30 years with a 25% deposit | £218,250 | £467,828 | £1,300 |
| 6.60% - 25 years with a 10% deposit | £261,900 | £535,274 | £1,784 |
| 6.60% - 30 years with a 10% deposit | £261,900 | £601,957 | £1,672 |
| 6.75% - 25 years with a 5% deposit | £276,450 | £572,868 | £1,910 |
| 6.75% - 30 years with a 5% deposit | £276,450 | £645,321 | £1,793 |
*These calculations do not include additional fees such as Stamp Duty, legal charges, application/product fees or brokerage costs. They are also based on the interest rate staying the same throughout the whole mortgage term.
It is easy to see how changing the mortgage term, finding a better interest rate, or increasing your deposit can dramatically impact the total repayment value and your monthly outgoings.
For example, if you took out the same £276,450 mortgage, at 6.75% interest with a 5% deposit over 25 years, increasing the term by 5 years, to 30 years overall, will increase the overall repayment by £72,444 (12.6%) but lower your monthly payment by £117 (6.2%).
This difference is why it is highly advisable to seek independent support from a mortgage broker and ensure you make sound decisions about your mortgage borrowing.
Saving just a fraction of a percent on your interest could make a sizable difference to your debt and how quickly you can pay your mortgage off completely.
Factors such as bad credit can also be pivotal in selecting an appropriate lender. If you have an adverse credit history, much depends on how severe those issues were and when they occurred.
Improving your credit score before applying can make a considerable difference, for example:
- Registering on the electoral roll or updating your details.
- Closing any credit cards, you are not using.
- Accessing copies of your credit reports to query any inconsistencies.
Likewise, repaying any debt can enhance your debt to income assessment and make it more likely that a preferred lender will approve your application.
Summing Up the Average Mortgage Payment in the UK
Mortgage payments vary hugely, depending on your circ*mstances, how much you need to borrow, and the region where you live – but it is worth reiterating the sheer number of lenders and products available.
Options such as mortgage guarantee schemes can support applicants who might otherwise not have been approved, and a specialist private broker can substantially increase your approval prospects.
Understanding costs, both the monthly repayment and overall commitment, is vital to ensure every homebuyer knows what they can expect to spend on mortgage interest.
Think Plutus always recommends lenders and products that meet your needs, whether your priority is to find the lowest possible monthly repayment, the most cost-effective mortgage long-term, or a product that offers the lowest interest rates possible.
Please get in touch if you would like any information about the mortgage rates and the average mortgage payments we have shown here or tailored guidance to help secure the mortgage borrowing you require.
