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How Much Does The Average Mortgage Cost in the UK?

average mortgage cost

Understanding how mortgage payments, terms and rates work is crucial for anyone looking to buy a house. Whilst not “essential”, many people like to know how their existing, or upcoming mortgage compares to the average mortgage cost across the UK.

For some it can be useful to guage your spending against the “average”, for others it might just peak their interest to know.

With housing prices and interest rates fluctuating, having a clear grasp of the costs involved can help you make informed financial decisions. Several major factors influence mortgage pricing, including interest rates, loan amount, term length, and the type of mortgage chosen. 

In this post we’re going to explore how much the average mortgage cost is across the UK, what the monthly repayments are, and how this information may impact your searching process.

What is the Average Mortgage Cost in the UK Right Now?

According to Finder, throughout the UK the average mortgage repayment as of latest published data is £1,202.

On average, Brits are paying £728 a month for their individual share of the mortgage payment. The average size of a mortgage taken out between October and December 2023 was £183,955. The average outstanding mortgage debt per household in the UK is £127,140. In March 2024, the average 2-year fixed-rate mortgage interest rate for a 25% deposit was 4.97%, down from a high point of 6.22% in July 2023. As of December 2023, there were over 13 million outstanding mortgages in the UK totalling around £1.66 trillion. In February 2024, the average house price in the UK was £281,000.

Factors Affecting Mortgage Costs

When it comes to understanding the overall cost of a mortgage in the UK, several key factors come into play. Each of these can significantly influence the amount you end up paying over the life of your mortgage. It’s important to fully understand this, as making the “wrong” decision can cost you thousands of pounds over the duration of your mortgage.

We’ve outlined the the key factors affecting mortgage costs below.

average mortgage price

Interest Rates

Interest rates are one of the most critical components of mortgage costs. The rate of interest determines how much extra you will pay on top of the borrowed amount. Lower interest rates mean lower monthly repayments and a reduced total cost over the term of the mortgage.

Conversely, higher interest rates increase both monthly payments and the overall amount payable. Interest rates can be fixed, remaining the same throughout the mortgage term, or variable, changing according to market conditions.

Loan Amount

The size of your mortgage loan directly impacts the cost. Larger loans generally result in higher total costs because you are borrowing more money. Additionally, the interest applied to a larger principal amount will accumulate more significantly over time.

It’s essential to carefully consider how much you need to borrow and ensure it aligns with your financial capabilities and long-term plans.

Mortgage Term

The term of your mortgage, or the length of time over which you agree to repay the loan, also affects the cost. Common mortgage terms range from 15 to 30 years, although shorter and longer terms are available.

A longer mortgage term usually means lower monthly payments, but you will end up paying more in interest over the life of the loan. Conversely, a shorter term increases monthly repayments but reduces the total interest paid, resulting in lower overall costs.

Deposit Size

The size of your deposit, or down payment, is another crucial factor. A larger deposit reduces the amount you need to borrow, which can lead to more favourable mortgage terms and lower interest rates. Lenders view a significant deposit as a sign of financial stability, which can make you a more attractive borrower.

Conversely, a smaller deposit might result in higher interest rates and less favourable loan conditions, increasing the overall cost of your mortgage.

Average Mortgage Interest Rates

Mortgage rates can vary widely between lenders and are rarely consistent across the board. Each mortgage provider determines interest rates based on a variety of factors, including offers, promotions, and the specific details of your application.

While we can’t give you an exact mortgage interest rate without knowing more about your individual situation, we can provide an overview of the average rates for some of the more popular mortgage products in the UK. 

The table below outlines these averages, along with the corresponding Loan to Value (LTV) percentages. The LTV ratio indicates how much you are borrowing relative to the property’s value. For example, a 75% LTV means you are borrowing 75% of the property’s value and have made a 25% deposit.

Average Mortgage Interest Rates

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

You can use our mortgage calculator to help you figure out the monthly costs of your proposed mortgage. This is a useful starting point, but we’d always recommend speaking to a mortgage advisor for the full picture and to contact us to get information and deals specific to you and your circumstances.

what is the average mortgage in the uk

Factors Influencing Lender Assessments

Lenders assess each application on a case-by-case basis, so the interest rates they offer may not match these averages. Several factors are considered in the assessment process, including:

  • Credit Reports and Credit Scoring: Your credit history and score are critical in determining your mortgage rate. Higher scores generally lead to better rates. Lenders look for a history of responsible borrowing and timely repayments. It’s advisable to check your credit report and address any issues before applying for a mortgage.
  • Property Value and Construction: The value of the property and any non-standard construction features can affect the rate offered. For instance, properties with unique construction materials or located in certain areas might be deemed riskier, potentially leading to higher interest rates.
  • Income and Employment Status: Your salary, employment stability, and existing debt levels are key considerations. Lenders prefer borrowers with a steady income and low debt-to-income ratio, as this indicates a lower risk of default.
  • Deposit Size: A larger deposit can lead to more favourable interest rates. Lenders perceive a substantial deposit as a sign of financial stability and a lower risk. A smaller deposit might limit your options and result in higher rates.
  • Mortgage Term: The length of the mortgage term also influences the interest rate. Shorter terms often come with lower rates but higher monthly payments, while longer terms might have higher rates but lower monthly costs.

It’s essential to note that the average mortgage interest rates provided here were published in October 2023. As of September 2023, the Bank of England’s Monetary Policy Committee (MPC) decided to maintain the base rate at 5.25%. This base rate influences the interest rates that lenders offer, so changes in the base rate can affect your mortgage costs.

What is the Average Mortgage Length in the UK?

A mortgage term is the length of time agreed upon to repay your mortgage in full. In the UK, mortgage terms can range significantly, from as short as six months to as long as 40 years. However, the most common mortgage term remains 25 years. This flexibility allows borrowers to choose a term that best suits their financial circumstances and long-term goals.

Typical Mortgage Terms

According to TSB Bank, the current average term for mortgages across the UK is 32.

Their data reveals that the average mortgage term for first-time buyers has increased from 30 years in 2021 to 32 years in 2023. 

The average age of first-time buyers has slightly decreased from 32 to 31 in the past year. First-time buyers made up 35% of all mortgage completions in 2023, with 57% opting for joint mortgages and 43% buying solo. Scotland had the highest number of first-time buyer completions (17%), followed by the South East (16%) and North West (12%). Additionally, video banking has significantly sped up the process, reducing the time between application and offer by 50%.

Traditionally it was very common for a 25-year mortgage to be considered the “standard”. many lenders now offer extended terms of 30, 35, or even 40 years. The availability of these longer terms has grown in response to increasing house prices, providing borrowers with more options to make their monthly repayments more manageable.

Shorter vs. Longer Mortgage Terms

Shorter Mortgage Terms

Shorter mortgage terms, typically ranging from six months to 15 years, come with higher monthly repayments but lower overall interest costs. This means you pay off the mortgage quicker and own your home outright sooner. For those who can afford the higher monthly payments, this can be a cost-effective option, saving money in the long run.

Longer Mortgage Terms

On the other hand, longer mortgage terms, extending up to 40 years, reduce monthly repayments, making homeownership more affordable in the short term. This is particularly beneficial for first-time buyers or those with tighter budgets. However, it’s important to note that spreading repayments over a longer period increases the total interest paid over the life of the mortgage, resulting in higher overall costs.

The Impact of Rising House Prices

The surge in house prices, particularly since the pandemic in 2020, has led many borrowers to opt for longer mortgage terms to improve affordability. According to the government’s UK House Price Index, the average UK house price was £286,000 in May 2023. This significant rise in property values has made it increasingly challenging for buyers to save for larger deposits and manage higher monthly repayments.

Regional Variations

House prices and mortgage terms can also vary widely across different regions of the UK. For instance, properties in London and the South East tend to be more expensive, leading to larger mortgage loans and often longer terms to ensure affordability. In contrast, properties in the North of England, Scotland, and Wales may have lower average prices, allowing for shorter mortgage terms if desired.

First time buyers

Pros and Cons of Different Mortgage Terms

Pros of Shorter Mortgage Terms

  • Lower Overall Cost: Paying off the mortgage faster reduces the total interest paid.
  • Quicker Homeownership: You own your home outright sooner, freeing up your finances for other investments or expenses.
  • Building Equity Faster: More of your monthly payment goes towards the principal rather than interest, increasing your home equity quicker.

Cons of Shorter Mortgage Terms

  • Higher Monthly Payments: The increased monthly repayments can strain your budget.
  • Qualification Requirements: Higher payments might make it harder to qualify for the loan based on income and debt ratios.

Pros of Longer Mortgage Terms

  • Lower Monthly Payments: Spreading the loan over a longer period reduces monthly repayments, easing short-term financial pressure.
  • Improved Affordability: More accessible for first-time buyers or those with lower incomes to manage monthly expenses.

Cons of Longer Mortgage Terms

  • Higher Total Interest: Extending the term increases the overall interest paid, making the mortgage more expensive in the long run.
  • Slower Equity Building: More of your payment goes towards interest initially, delaying the growth of home equity.

Average UK House Prices for 2024

According to gov.uk the provisional estimate for annual house price inflation in the UK was -0.6% for the 12 months ending in January 2024, an improvement from the revised estimate of -2.2% for the previous 12 months ending in December 2023.

In January 2024, the average UK house price was estimated at £282,000, which is £2,000 lower than the previous year. Over the same period, average house prices decreased in England to £299,000 (-1.5%) and in Wales to £213,000 (-0.8%), but increased in Scotland to £190,000 (4.8%). Northern Ireland saw an increase to £178,000 in the fourth quarter of 2023 (1.4%).

According to the UK Property Transactions Statistics, the number of residential property transactions valued at £40,000 or more was approximately 82,000 in January 2024 on a seasonally adjusted basis. This represents an 11.9% decrease compared to January 2023 but a 1.9% increase from December 2023.

Among English regions, the North West experienced the highest annual house price inflation at 1.0% for the year ending in January 2024, while London had the lowest, with prices decreasing by 3.9% over the same period.

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%

Courtesy of https://thinkplutus.com/

Tips for Managing Mortgage Costs

With the cost of living going up, interest rates going up, and wages remaining the same, it can be hard to get your mortgage under check. Especially for those looking to move to a bigger home with a growing family. Some may be wondering if they can get a mortgage without a deposit. We’ve got that covered in a separate post – but the short answer is yes (for some people)

Here are a few of our tips for helping to manage mortgage costs:

Improving Credit Score

Your credit score plays a pivotal role in determining the interest rate you qualify for on your mortgage. A higher credit score typically translates to lower interest rates, saving you thousands of pounds over the life of your mortgage. To improve your credit score:

  • Check Your Credit Report: Regularly review your credit report to ensure it accurately reflects your financial history.
  • Pay Bills on Time: Consistently pay your bills and debts on time to demonstrate reliability to lenders.
  • Reduce Debt: Pay down existing debts to lower your debt-to-income ratio, which can improve your creditworthiness.

Saving for a Larger Deposit

A larger deposit not only increases your chances of securing a mortgage but also reduces the amount you need to borrow. This can lead to lower monthly payments and potentially better interest rates. Consider these tips to save for a larger deposit:

  • Set a Budget: Create a budget and cut unnecessary expenses to save more each month.
  • Explore Government Schemes: Look into Help to Buy or Lifetime ISA schemes that offer incentives for saving towards a home deposit.
  • Automate Savings: Set up automatic transfers to a dedicated savings account to steadily build your deposit fund.

Understanding and Negotiating Interest Rates

Understanding how interest rates work and effectively negotiating with lenders can significantly impact your mortgage costs. Here’s how to approach interest rates:

  • Research Current Rates: Stay informed about current mortgage interest rates and trends in the market.
  • Compare Lenders: Shop around and compare offers from different lenders to find the best rate.
  • Negotiate Terms: Use your research to negotiate with lenders for lower rates or favourable terms, especially if you have a strong credit profile or a larger deposit.

Summary

So, now you know what the average mortgage repayment is across the UK. Is this higher or lower than you thought? How does it compare to your own mortgage price? While knowing the average cost may be “interesting” it should not really factor your decision.

Your mortgage is based on you and your circumstances. It’s nice to be able to gauge things against “the average” but ultimately, you need a mortgage right that works for you. 

And that’s where we come in. Our team of friendly experts have access to thousands of deals that traditional banks and lenders don’t have. That means we can get you the absolute best mortgage, specific to your financial situation.

Interested? Contact our Hartlepool Mortgage Broker office today!

 

 

 

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