First-time purchasers must pay an additional £12000 in interest per year. Only 30% of the debt will really be repaid through monthly payments.
The cost of purchasing a home has increased due to rising mortgage rates, and first-time buyers now face paying roughly £12,000 in interest alone each year.
For many homeowners, buying is currently more expensive than renting, and analysts predict that the difference will grow in the near future.
According to an analyst named Moneyfacts, the average mortgage rate for a two-year fixed agreement is currently 5.86 percent, while the rate for five-year deals is 5.51 percent.
Mortgage rates have increased recently as a result of the possibility of more interest rate increases being raised by higher-than-expected April inflation data.
According to broker L&C Mortgages, a homeowner with a typical £200,000 mortgage on a 25-year term will now spend an average of £977 a month in mortgage interest, or £11,724 a year. Only £3,540 a year would be allocated to the loan’s principal.
The monthly mortgage payment would be £1,272, up from £906 two years ago.
In June 2021, when interest rates were at all-time lows, the typical two-year mortgage rate was 2.59 percent, according to Moneyfacts.
At £5,184 per year, a first-time buyer who took out a mortgage for £200,000 would have paid less than half as much in interest.
In many situations, owning is no longer more affordable on a monthly basis than renting.
According to Hamptons estate brokers, the country’s average rent last month was £1,258.
The difference between purchasing and renting has shrunk recently as mortgage rates have fallen and rentals have increased, according to Aneisha Beveridge of Hamptons, but this is predicted to alter.
“As rates now start to rise again, we might see things turn once more which will probably favour renting a little bit more,” she said.
According to estimates from the Department for Levelling Up, Housing and Communities, half of landlords do not have mortgages despite the fact that rents are also rising.
Because some landlords won’t need to raise rents as much, some tenants will pay less to live in their homes than they would have if they had taken out a loan to buy them.
In the year ending in May, rent growth was 9.1%, down from 11.1% in April.