What is the average monthly mortgage payment in the UK?

What is the average mortgage payment in the UK?

If you add up all the current UK mortgage payments and divide them by the number of mortgages, you’ll discover the average monthly payment per person is between £665 and £700.

The average monthly mortgage repayment on a house in the UK is currently £1,441.36.

Average house prices in the UK have continually been on the rise since the global financial crisis of 2007-2009. According to the House Price Index, the average property price is £287,546. 

However, the average London house price is far higher than this, at around £527,979.

On the opposite end of the scale is the North East, with the UK’s lowest average house price at roughly £161,034.

What is the average mortgage payment, including interest rates, in the UK?

As we mentioned, the current average UK monthly mortgage repayment on a typical house is £1,441.36.

This is for a 25-year mortgage, with a 25% deposit and a 6.39% interest rate, which is high compared to historic rates. 

However, this is not necessarily an indication of your mortgage payment as rates vary considerably from one lender to another, and eligibility for lower interest rates depends on a number of factors.

Here is an overview of the current average UK mortgage payments on a home valued at £287,546, based on a 25-year term but with various interest rates and deposits. 

Two-year fixed-rate mortgage:

Deposit: 5%

Average mortgage interest rate: 6.75%

Monthly repayment: £1,887

Two-year fixed-rate mortgage:

Deposit: 25%

Average mortgage interest rate: 5.94%

Monthly repayment: £1,382

Three-year fixed-rate mortgage:

Deposit: 25%

Average mortgage interest rate: 5.78%

Monthly Repayment: £1,361

Standard variable rate mortgage:

Deposit: N/A

Average mortgage interest rate: 7.93%

Monthly repayment: £2,206

What factors affect mortgage rates?

In the UK, a variety of factors affect mortgage rates in general:

• The Bank of England (BoE) base rate: When the BoE base rate increases, variable mortgage rates also increase - but they can fall with any base rate cuts. This is closely linked with inflation. The base rate can impact mortgage rates offered by lenders.
• Inflation: When inflation increases or is too high, the BoE tends to push up the base rate to subdue it. By the same token, as inflation decreases, the BoE tends to lower the base rate.
• The type of mortgage
• Property market conditions
• Swap rates: Any rises and falls in interest rates on fixed-rate mortgages correspond directly to increases and decreases in swap rates. This is because swap rates impact the price at which lenders can borrow funds with which to purchase your house on your behalf.

In addition to this, lenders vary the mortgage rates they offer based on an extensive mortgage checklist:

• Your credit score and history.
• Your deposit amount.
• Your debt-to-income ratio and existing financial commitments.
• Your income and employment status.
• Property value and type.
• Your age.
• The number of applicants: You may find that applying for a mortgage with a spouse, for example, can decrease your risk level as a borrower in the eyes of lenders.
• The length of the mortgage term.

How is a mortgage calculated?

Here is the basic formula for how a mortgage is calculated (monthly):

P (r (1+r)^n) / ( (1+r)^n -1 )

r = Monthly interest rate (annual interest rate/12)

P = Principal amount (starting balance of the loan)

n = Total number of payments (12 times the number of years of your mortgage term)

Of course, this does not account for all factors, so Unbiased’s mortgage calculator will give you a more accurate indication of your mortgage payments. 

Here’s a table showing the correlation* between common mortgage elements and interest rates: 

* + = As the mortgage element’s value increases, the interest rises, and vice versa.

   –  = As the element’s value increases, the interest rate decreases, and vice versa.

How long is the average mortgage?

Mortgage term options range from as little as six months to as long as 40 years. Currently, the average mortgage term in the UK is 25 years. 

In light of this, the current average UK mortgage payment is around £1,441.36.

However, due to inflation, people are increasingly opting for longer mortgage terms in the UK to reduce monthly payments.

The unfortunate flipside of this is that homeowners will ultimately end up paying more for their properties as a result of compound interest.

Can I lower my monthly mortgage payments?

Currently, roughly a third of UK tenants and owners find it hard to make their monthly rent or mortgage payments.

The good news is that you can lower your monthly mortgage payments by various means:

• If you’re on a standard variable-rate mortgage, consider switching to an interest-only arrangement. This will protect you against increased inflation.
• Consider extending the mortgage term. Bear in mind that this will ultimately increase the total amount you pay due to increased compound interest.
• Remortgage onto a new deal with a lower interest rate.
• Try to overpay on your mortgage if you can to reduce your principal loan amount and corresponding interest. Remember that you may incur charges if you exceed your lender’s overpayment allowance.
• Pay fees upfront to help reduce your principal loan amount.

Seek expert financial advice

You should now have a much better understanding of how mortgage payments are calculated and data regarding the average UK mortgage payment.

This means you are in a much better position to make informed choices regarding your mortgage.

To learn more about mortgages and to find the most competitive deals, let Unbiased match you with a qualified mortgage broker.