Mortgage interest burden eases despite soaring UK house prices
Mortgage borrowers are paying less interest than at any time over the past 20 years, even as UK house prices have skyrocketed and the total stock of home loans has continued to rise.
UK borrowers spent £ 31.6 billion on mortgage interest in the 12 months through April, the lowest annualized monthly figure since the turn of the millennium, and less than half that paid in the past year until October 2008, when the interest bill was at its peak.
Savills, the real estate agent, calculated the interest amount using data from the Bank of England and adjusted to exclude the impact of last year’s mortgage payment deferral program.
In its recent April credit report, the bank said average mortgage interest rates had fallen to their lowest level on record at 2.07%. By comparison, the average rates in October 2008 were 5.82 percent.
The total stock of outstanding mortgage debt (excluding that recorded by housing associations) fell from £ 1.47bn to £ 1.52bn in the 12 months leading up to April. House prices, meanwhile, rose 9.5% annualized in May, according to the Halifax index last week, its highest level in nearly seven years.
Lucian Cook, director of residential research for Savills, said the greater affordability of mortgage debt had fueled the housing boom as people sought larger properties with more outdoor space or gardens under foreclosure.
“You wouldn’t have seen the same increase in activity if you had been in an environment of higher interest rates, and especially if you hadn’t been able to get low interest rates on mortgages at. longer term. People were able to reduce their risk by taking more money over five years, ”he said.
The ‘best buy’ rate on a five-year fixed rate mortgage is 1.19% with a fee of £ 999, offered by Barclays to those with a deposit of 40% or more – the lowest rate market for at least 12 years, according to Defaqto, a financial information provider.
For those looking for a mortgage at 75 percent of the value, Defaqto’s current ‘best buy’ is Clydesdale Bank’s 1.49 percent (with fees of £ 999).
Katie Brain, consumer banking expert at Defaqto, said: “While the Bank of England has kept interest rates low throughout the pandemic, we haven’t seen this spread to borrowers like this one so far. “
In addition to triggering a “race for space,” the lockdown has left many homeowners with additional savings as their spending possibilities have been curtailed by the restrictions – and some have taken the opportunity to pay off more of the money. their mortgage debt with lump sum payments. Excluding full refunds, those refunds rose 13% to £ 19.5 billion in the year ending April, Savills said.
The booming UK market has not been driven by first-time buyers but by movers, often armed with high levels of real estate equity and responding to the incentive of a temporary stamp duty holiday. Their current home equity has made them less dependent on mortgage debt and therefore less likely than heavily indebted borrowers to violate the rules that control how much people can borrow as a proportion of their income.
“The average income of the average mover has increased reasonably substantially during the pandemic, suggesting that it is the more affluent buyers who control the market,” Cook said.