How much have mortgages risen since 2021?
Across the whole of the UK, the average buyer is having to find an extra £4,320-a-year to pay their mortgage in 2024, when buying an average priced home with a 30% deposit.
Back in 2021, the average annual mortgage payment was £7,000. Today, it’s £11,400.
And higher mortgage rates are hitting southern England the hardest.
In London, the average buyer will need to find an extra £7,500-a-year to cover the cost of their mortgage, which is now amounting to £23,000-a-year. In 2021, that figure was closer to £15,000.
In the South East, annual repayments on mortgages have risen by £6,000, while in the South West, they’ve gone up by £5,300 a year.
Across the rest of the UK, the picture is less bleak, with buyers in the Midlands needing to find an extra £3,900, while buyers in the North East are paying an extra £2,350.
Our Executive Director of Research, Richard Donnell, says: ‘At a region and country level there has been a 50% to 70% increase in mortgage repayments for a typical buyer between 2021 and 2024.
‘The largest monetary impact is in southern England, where house prices are higher. The annual cost of mortgage repayments for an average priced home is more than £5,000 higher per annum in 2024 than 2021 across the South West, South East, East of England.
‘Two thirds of this increase is a result of higher mortgage rates. However, one third is also down to the fact that average house prices are still 13% higher than they were in March 2021.’
Annual mortgage payments across the UK: 2021 vs 2024
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We’re all missing the ultra-low lending rates enjoyed in 2021
Since 2022, mortgage rates have spiked twice: at the end of that fateful autumn budget year and again in the summer of 2023, as interest rates increased to combat rising inflation.
Aside from massively reducing purchasing power for buyers and spare income for homeowners, higher mortgage rates have also affected the housing market in two major ways:
A 23% drop in sales over 2023
Modest house price falls
And while the average mortgage rate for a 5-year fix at 75% loan-to-value has fallen back to 4.5% in recent months, rates are starting to drift higher again amid shifting expectations for interest rate cuts later this year.
Our view is that mortgage rates will average out at 4.5% over 2024. However, affordability remains a challenge for buyers and first-time buyers, as mortgages are now costing an average of 60% more than they did three years ago.
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Mortgage rates set to plateau at 4.5% this year
While, in good news, the Bank of England’s base rate looks to have reached a plateau, the reality is that the annual mortgage repayments for a typical buyer using a 70% LTV loan for an average priced home are still much higher than 3 years ago.
‘This continues to act as a drag on buying power and levels of house price inflation,’ says Donnell.
‘When mortgage rates started to rise, we reported that the shift from 2% mortgage rates to 5% would deliver a 30% reduction in buying power for mortgaged home buyers, assuming the borrower kept their repayments and deposits the same,’ says Donnell.
‘Buyers withdrew from the market in the face of higher borrowing costs and general uncertainty over the economic outlook and this drove transactions lower over 2023.’
Then there’s stamp duty to think about
Stamp duty is a tax that’s mainly paid by homebuyers in the south of England, since it only kicks in on properties over £425,000 for first-time buyers, or £250,000 for home movers in England.
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‘It’s not just mortgage costs that impact buying decisions,’ says Donnell. ‘Higher house prices also mean stamp duty costs are much greater across southern England, adding to buying costs.
‘Some 75% of annual stamp duty receipts are from purchases across southern England with these regions accounting for 50% of housing sales.’
What are buyers doing in the face of higher mortgage rates?
Buyers are open to widening their searches in the hunt for better value homes.
And while they aren’t looking to compromise on the size of the home they need or the number of bedrooms they require, some are looking further afield to secure the right home for them and their families.
Our latest consumer research shows that a third of households who want to move are now looking beyond their local area to secure the home they require.
In fact, despite higher mortgage rates, confidence among buyers is high, and the number of sales agreed is now 12% higher than this time last year.
And for the first 4 months of 2024, the number of sales agreed has been higher than the first 4 months of 2023.
More choice in the number of homes available is enticing more buyers back to market.
‘The housing sales pipeline is now rebuilding after a period of lower sales when mortgage rates spiked higher in 2022 and 2023,' says Donnell.
‘Our data shows that the housing market remains on track for 1.1m sales completions in 2024, up 10% on 2023.’