Average mortgage rates forecast to fall in 2023
Recently published research has forecasted the monthly average mortgage payment is to decrease by £188 by this time next year. This is despite the latest base rate hike by the Bank of England causing the average mortgage payment to rise by £166 per month.
According to the research by bespoke property finance lending firm Octane Capital, the cost of borrowing should eventually settle down and cause the average mortgage rate to drop 4.93% within 12 months.
Monthly Mortgage Rate Savings
Such a drop would make the average monthly repayment for people with a variable rate mortgage decrease to round £1,288 per month according to current property values. The projected saving of £188 has also been calculated according to current market conditions, with a potential drop in house prices in the near future possibly increasing the savings even further.
Research Analysis and Findings
Octane Capital finalised their projections after analysing the cost of homeownership based on a variable rate mortgage at 75% loan-to-value over a 25-year term.
Adjusting for inflation, they discovered that ten years ago, the cost of a variable rate mortgage averaged around £895 per month. With an average rate of 4.29%, homebuyers a decade ago were paying an average of £103,993 in interest on their property purchase. The following years then saw a sustained period of borrowing affordability with the Bank of England base rate remaining around 1% or less.
That base rate then shot up to 2.25% this summer, with homebuyers now facing an average mortgage fee rising to 5.10%. That bumped the monthly mortgage repayment cost up to £1,310 per month, which works out to a £415 increase compared to ten years ago, including added interest.
A Settled Economy to Bring Mortgage Rate Relief
More increases are to come, with the base rate now rising to 3% and the average mortgage rate estimated to increase to 6.34%. However, Octane Capital expect the economy to settle ‘to some extent’ throughout 2023, with the monthly cost of repaying a mortgage dropping below the current levels.
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