Monthly repayments on newly issued mortgages have increased significantly over the past year because of rising interest rates increasing the cost of borrowing. House prices were 9.8% higher in December 2022 compared with a year earlier, according to our UK House Price Index (HPI).
Previous Office for National Statistics (ONS) analysis, in our How increases in housing costs impact households article, found that more than 1.4 million households in the UK are facing the prospect of interest rate increases when they renew their fixed rate mortgages in 2023.
Because mortgage loans tend to be for large amounts of money, small increases in mortgage rates can have a big impact on the amount that households will have to pay back each month. To help keep track of the link between house prices and mortgage rates, we have launched a map-based calculator tool that shows the indicative monthly cost of taking out a new mortgage on the average property.
In this article, we have summarised some key trends in the data, which could help you to get the most out of the tool.
UK mortgage rates have risen sharply in the past year
Average quoted mortgage rates for 5-year fixed mortgage at a 75% loan-to-value
The monthly cost of a new mortgage rose by 61% in the year to December 2022 for the average semi-detached house in the UK
Mortgage rates differ, depending on the size of the loan relative to the value of the property being purchased. This is known as the loan-to-value ratio. The average mortgage rate offered by lenders for a five-year fixed rate loan at a 75% loan-to-value ratio was 5.05% in December 2022, according to the Bank of England. All the examples used in this article are based on these figures.
This would have resulted in a monthly mortgage repayment of £1,262 if you were purchasing a semi-detached property in the UK at the average December 2022 price of £286,000, with a mortgage term of 25 years. This is a £481 (61%) increase in the monthly repayment compared with the corresponding monthly repayment estimate in December 2021. The average equivalent mortgage rate on offer was 1.59% and the average UK semi-detached property price was £258,000 in December 2021.
Purchasing the average detached UK property on the same terms in December 2022 would have resulted in a monthly mortgage repayment of £2,041 (up by 60.7% on December 2021). For terraced houses, it would have been £1,063 (up by 59.6%). For flats and maisonettes, it would have been £1,028 (up by 54.6%).
In December 2021, a loan-to-value rate of 75% and a budget of £1,000 per month would have enabled you to afford an average semi-detached property in nearly two-thirds of local authorities in Great Britain.
With the same budget in December 2022, however, you would be able to afford the average semi-detached property in less than a third (30.1%) of areas.
Increased mortgage rates have pushed monthly repayments higher
Indicative monthly mortgage payment (£ nominal) for average priced properties in the UK assuming average 5-year fixed mortgage offer over 25 years at a 75% loan-to-value
The calculator can use your own budget to see how the average prices of different areas have changed over the past year. Remember that this tool should not be used to make personal finance decisions and is only based on average prices data.
London’s higher house prices have resulted in the biggest monthly cost increases
More expensive houses typically require larger mortgages, which leads to significant variation on monthly mortgage payments on a local level within the UK.
It is just under 150 miles to drive from London to Cardiff, but the two capitals are a world apart in terms of their housing markets. In London, the average price of a terraced house was £594,000 in December 2022, more than double the £258,000 average price of a terraced house in the Welsh capital.
Based on a 75% loan-to-value rate on a five-year fixed mortgage over 25 years, a terraced property in London would have cost £2,616 per month, an increase of £930 (55%) on the equivalent figures from December 2021.
Along the M4, the average mortgage repayment on terraced houses in Cardiff would have been £1,138 per month in December 2022, less than half of London’s average. However, because of house prices having increased by a greater percentage in Cardiff during the previous year compared with in London, this average mortgage payment in Cardiff would have increased to £438 (63%) compared with December 2021.
Our calculator shows that the highest house prices and, therefore, highest mortgage payments across all property types were in the London borough of Kensington and Chelsea. Average semi-detached houses in the borough were priced at £3.79 million in December 2022, resulting in a mortgage payment of £16,718 per month. This figure assumes a 25-year repayment term, a 75% loan-to-value arrangement, the average five-year fixed mortgage rate, and was an increase of £4,002 on the previous year.
The lowest mortgage repayment cost for a semi-detached property on the same terms was in County Durham at £576 per month in December 2022. This would have cost £470 per month, on average, in December 2021.