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Interest rates rise: latest hike to 2.25 per cent will see £1,500 added to London first-time buyer mortgage payments

The Bank of England’s base rate increase of 0.5 per cent is the seventh consecutive rise unveiled by the Monetary Policy Commitee (MPC)

The average asking price of a typical first-time buyer home in the capital is now £501,384

/ Matt Writtle
By
Meghann MurdockDeputy editor, Homes & Property
22 September 2022
L

ondon first-time buyers will see £1,512 a year added to their mortgage repayments following the 0.5 rise to the base rate announced by the Bank of England today.

The latest increase is the seventh consecutive rise unveiled by the Monetary Policy Committee (MPC), taking the base rate to the highest level since the financial crisis.

In London, where the average first-time buyer asking price is now £501,384, the average monthly mortgage payment for a first-time homeowner is currently £2,362. Should lenders pass on the latest base rate increase, monthly payments will increase by £126 on average to £2,488 — an extra £1,512 over the course of a year.

Average mortgage payments for UK first-time buyers are now 30 per cent higher than they were in January this year, according to Rightmove, while the average 10 per cent deposit on a typical first-time buyer home is £22,409.

“Despite interest rates rising, demand in both the first-time buyer sector and overall market is still up on the longer-term pre-pandemic average, signalling that many are adapting to changing rates in their plans and getting on with moves,” said Tim Bannister of Rightmove.

“Even with seventh consecutive rise this takes average lender rates back towards where they were as recently as 2012-2014.

“The indication is that rates are set to rise even further into 2023. This sense that it’s going to become more expensive to borrow means that those thinking of buying for the first time may rush to fix now before rates rise further.”

Interest rates have been rising from a historic low level as the Bank seeks to combat inflation with the base rate now set at 2.25 per cent, the highest it has been in 14 years.

“A borrower with a £300,000 variable-rate mortgage will have to find an extra £1,500 a year. With the energy price cap due to rise again at the beginning of October, some households will really struggle,” said Mark Harris of mortgage broker SPF Private Clients.

“The cost of a five-year fixed-rate mortgage has almost tripled over the last year and this upwards trajectory will continue,” said Tom Bill, Knight Frank’s head of UK residential research.

“There is still backed-up demand in the housing market, which will be prolonged by a stamp duty cut. However, any saving is likely to be eclipsed by rising rates. What the government gives, the Bank of England more than takes away.”

Homeowners already struggling to keep up with rising costs, particularly first-time buyers who managed to buy in the last few years, will face a shock when fixed-rate deals come to an end and the time to remortgage approaches.

“The increase will impact first-time buyers and new borrowers particularly, bearing in mind approximately 80 per cent of borrowers are on fixed rates,” said north London estate agent Jeremy Leaf.

“However, with UK Finance forecasting that 1.8 million deals are due to end at some point next year, there will be plenty of borrowers looking for new mortgage deals at a time when rates are likely to be considerably higher.

“Although rates are still low compared with their historical average, the impact is exacerbated by continuing worries about inflation and the economy generally.

“The longer the climate of higher interest rates persists, the more likely it is that people will consider selling, leading to a softening in prices. However, it is worth remembering that around 50 per cent of homeowners are not dependent on mortgage finance at all so will be unaffected.”

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