"This pain has arguably been prolonged by the Bank of England which has been cautious, to say the least, in its attempts to manage inflation"
- Jonathan Samuels - Octane Capital
Specialist property lending experts, Octane Capital, analysed the current monthly cost of a mortgage based on the average mortgage rate and an 80% loan to value and how this monthly cost has changed over the last five and 10 years after adjusting for inflation.
The research shows that between 2018 and 2023 monthly mortgage payments rose by 39%, increasing from £1,008 per month to £1,404. This compares to an increase of just 4.3% from 2013 to 2018, from £966 to £1,008.
Falling mortgage rates offset rising house prices
Between 2013 and 2018 typical mortgage rates fell from 3.79% to 2.34%, which kept the cost of monthly repayments low despite prices rising.
House prices surged by 22.2% in five years from £234,000 in 2013 to £286,000 in 2018, and it’s likely having such cheap mortgages fuelled this rise.
Rather than mortgage affordability, the challenge for buyers in 2018 was finding a bigger deposit, as typical 20% deposits rose from £46,800 in 2013 to £57,200 in 2018.
Since 2018 however, house prices have only risen by 1% to around £287,500 in 2023, as escalating mortgage rates have become the problem, putting the brakes on the market, alongside the pandemic and the infamous mini-Budget this month last year.
As of September 2023, average mortgage rates have rocketed to 5.44%, as the Bank of England has embarked on a series of base rate rises in a much-publicised quest to keep inflation in check.
CEO of Octane Capital, Jonathan Samuels, commented: “The cost of repaying a mortgage is considerably higher in today’s market than it was just five years ago and much of the increase seen over the last decade has come since 2018. This pain has arguably been prolonged by the Bank of England which has been cautious, to say the least, in its attempts to manage inflation.
"The current climate is likely to block the aspirations of many who want to own their own home although there have been signs of positivity this week, as some lenders have reduced their fixed rate offering to below the five per cent threshold.
"However, it’s extremely likely we will see the Bank of England increase the base rate yet again this week and so it’s unclear as to how long this period of increased mortgage affordability will last.”