Good news for homebuyers as cost of borrowing expected to fall further over coming months

CEO of Octane Capital, Jonathan Samuels, has reassured homebuyers that should start to benefit from more affordable borrowing costs following the cut to base rate at the start of August, with the average monthly mortgage payment having already fallen by £116 per month since the base rate was frozen in August of last year.

Octane Capital analysed how the monthly cost of taking out a mortgage has changed since interest rates first started to rise and since they were held at 5.25% in August last year, before also looking at the importance of placing a higher deposit when it comes to reducing the monthly cost of borrowing.

The research shows that in December 2021, when interest rates first started to climb, the average person would have paid £888 per month when making a full monthly repayment on the average mortgage*, with the average mortgage rate sitting at 1.71%.

By the time the base rate finally peaked at 5.25% in August 2023, the average mortgage rate had climbed to 6.35%, pushing the full monthly repayment of the average mortgage to £1,467 - a jump of 64% or £579 per month.

However, whilst rates remained frozen until August of this year, this did, at least, bring some stability to the mortgage sector, which in turn, allowed lenders to slowly reduce the cost of borrowing.

The research by Octane Capital shows that, over the last year (Aug 23 to Aug 24), the average mortgage rate has reduced to 5.21%, with the full monthly repayment on the average mortgage also falling to £1,351 despite an increase in the cost of the average home.

As a result, the full monthly repayment on the average mortgage has reduced by 9% or £116 per month when compared to August last year when the base rate first hit 5.25%.

With the Bank of England deciding to reduce the base rate for the first time since 2020 at the start of this month, buyers are likely to see a further reduction in the cost of borrowing over the coming months.

However, additional research by Octane Capital has highlighted the importance of placing a higher deposit when looking to purchase.

A buyer today can expect to pay a full monthly repayment of £822 and secure an average mortgage rate of 3.76% when placing a 40% deposit. In contrast, those placing a deposit of 20% will secure an average mortgage rate of 4.13% and pay £1,140 per month.

This means that, on average, a buyer will pay out £16 less per month for every additional percent of deposit they place, meaning that even stretching from a 20% to a 25% deposit could save you around £80 per month on your mortgage repayments.

CEO of Octane Capital, Jonathan Samuels, commented:

"It's clear that the freeze on the base rate seen since August of last year had a positive impact on the property market, with mortgage lenders and home buyers alike finally benefitting from stability following a prolonged period of interest rate hikes.

As a result, the average cost of a monthly mortgage repayment had already started to reduce before the Bank of England cut rates at the start of this month and, now that they have, we can expect a greater degree of affordability to materialise over the coming months.

Of course, rates remain far higher than many may be used to and so whilst we're heading in the right direction, it's important not to get carried away and overstretch when looking to borrow. In fat, as our research shows, you're far better off stretching to place a larger deposit, as this will have a direct impact on the sum you are required to pay on a monthly basis thereafter."