Monthly mortgage payments could fall by around 25% by the end of the year, new analysis suggests, in what would be welcome news for homeowners.
Mortgage borrowers have been hit by rocketing costs due to nine Bank of England interest rate rises - the base rate is now at 3.5% - and the infamous Mini Budget.
New research from wealth manager Quilter shows average mortgage payments rose by 66% in the last year.
At their peak, mortgage rates soared above 6% in September 2022 - but deals have started to climb down and the cheapest fixed rate is now 4.34%.
Quilter has now looked at how your mortgage could be impacted if rates continue to fall over the next few months.
The latest Government house price index data shows the average UK property cost £294,910 in November 2022. During this period, mortgage rates were still at around 6%.
This means those who purchased a property at this price and mortgage rate with a term of 25 years and an 80% loan to value ratio faces a monthly mortgage payment of £1,520.
This is a huge 66% increase on the £918 monthly mortgage payment this same person would have paid a year earlier when rates were 2% and house prices were 10.3% lower.
Halifax Building Society predicts house prices will fall by 8% in November 2023, while mortgages could continue to dip as well.
If mortgage rates continue to fall to around 4% and house prices drop to £271,317 as predicted, analysis from Quilter suggests mortgage payments would fall by 25% compared to a year earlier to £1,145.
Of course, various factors will impact the exact amount that mortgage payments will fall by, including the loan to value level, the cost of the property, and the mortgage term length.
It is also impossible to predict how the mortgage market will react over the next year - this is just based on predictions.
Quilter notes some parts of Britain have been hit harder than others in terms of house prices and mortgage costs.
The North West of England saw a 13.5% increase in the average house price between November 2021 and November 2022.
When combined with the 6% mortgage interest rates seen during November 2022, the average monthly mortgage payment for someone with a loan to value of 80% increased by 70% year on year.
Those living in London saw the smallest percentage increase in monthly payments as house prices.
This is because those living in the capital saw a much lower increase of 6.3% over the year to November 2022, but they were still up 58.6% to £2,796 a month.
Karen Noye, mortgage expert at Quilter said: “Rising mortgage rates have played a significant role in the affordability of buying a first home or moving home, and for many these costs were pushed to unaffordable highs.
“It is therefore a real positive that looking forward we can hope to see such a significant dip in monthly mortgage payments by the end of the year should house prices and mortgage rates continue to fall as expected.
“However, there is no guarantee that the changes in the housing market will materialise in the way that has been predicted.
“Inflation is still incredibly high and people’s buying power has taken a real hit as a result, particularly with rising energy bills, but thankfully we look to now be moving past the peak.
“Lower inflation should mean interest rates stabilise and even start to drop with mortgage rates following suit. This could result in mortgage rates dropping to 4% by the end of the year and potentially even lower in the future which will have a real impact on monthly mortgage costs.”
