Seems like Croydon South MP Chris Philp’s first weeks in office at the Treasury have managed to make life tougher even for the people who would usually be expected to be among his firmest supporters: house buyers.
Hard times: the cost of a mortgage has soared in the past couple of weeks under Liz Truss’s government
Market analysis by specialist property lending experts, Octane Capital, shows that the average cost of a mortgage has climbed by as much as 34per cent, adding hundreds of pounds a month to mortgage repayments for homebuyers who are already struggling with the cost of living crisis.
Octane Capital analysed the cost of the average full monthly mortgage repayment for homebuyers entering the market via four of the most common mortgage products, as well as how the cost of these products has changed since the first base rate increase back in December of last year.
When it comes to the most costly route for homebuyers when negotiating the current mortgage market, a two-year fixed rate mortgage at a 95per cent loan to value requires the highest monthly repayment.
With an average fixed rate of 3.97per cent, up from 2.77per cent in December 2021, homebuyers opting for this product in the current market will be required to pay back £1,460 having placed a 5per cent deposit to begin with.
Those opting for a standard variable rate product and placing a 25per cent deposit are also paying some of the highest costs at present. With the highest average rate of 4.54per cent, again up from 3.61per cent since December, homebuyers are facing an average monthly repayment of £1,179.
However, both products have seen the cost of a monthly repayment increase by 23per cent and 19per cent respectively, a lower rate of increase compared to both a two- and three-year fixed product at a 75per cent LTV.
Double whammy: Croydon residents might be hit twice by the increase in mortgage costs, as the failed housebuilder Brick by Brick struggles to sell its homes
The average mortgage rate on a two-year fixed mortgage has seen the largest increase, climbing by 1.94per cent since December of last year, now averaging 3.51per cent. At 3.31per cent, the average rate available for a three-year fixed mortgage is now 1.92per cent higher than it was back in December.
As a result, the average monthly repayment for both a two-year and three-year fixed rate mortgage has climbed by 34per cent so far this year, with the average monthly cost of a two-year fixed mortgage up by £284 per month to £1,098, while the average three-year product is now £274 more expensive when it comes to the average repayment, costing £1,075.
For the people of Croydon, such increases are a double-whammy. Because while they may be hit with increased mortgage payments, their council will find it tougher to realise any value for Council Tax-payers by selling off the last remaining homes built by Brick by Brick, the failed council-owned housing company.
Jonathan Samuels, the CEO of Octane Capital who conducted the research on mortgage costs, said, “It seems as though every day there’s yet more gloomy news around the ever-increasing cost of living and, unfortunately, the cost of borrowing to fund a property purchase is just one household finance that is climbing at a considerable rate.
“Since the first of numerous interest rate increases in December of last year, lenders have had to react to a landscape that has become increasingly uncertain and volatile.
“This means that regardless of what mortgage product you opt for, those looking to purchase now will be paying hundreds of pounds more a month compared to just a few months ago.
“With the Bank of England also due to increase interest rates again, this cost is only going to increase and many lenders will have already been adjusting their rates in anticipation of another base rate increase.”
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Surely a rise of 30% in mortgage repayment costs will have to be matched by a 20% drop in house prices?
Let’s assume that someone has £40,000 cash to put on a £300,000 property, therefore needing a £260,000 mortgage. If the property price drops 20% to £240,000, but the mortgage cost rises by 30%, then the buyer can raise a mortgage of £200,000 for the same monthly cost as before and will need the same amount of cash as before. Deal done!
Ironically a general decrease in house prices will be welcomed by both buyers and sellers EXCEPT inheritors, and older people needing to convert their house value into care costs. The former will just have to get used to the idea 😉 and the latter will require the government to play a more active role in the provision of care facilities .. which I view as a fundamental social responsibility.
Perhaps this ‘problem’ will turn out to have a silver lining after all.
Except there has been, as yet at least, no such fall in house prices.