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How much does the average mortgage cost?

How much does the average mortgage cost?

Knowing when you’ve got a good mortgage deal is hard, isn’t it? Every house is different, every household’s income and outcomes are different…but if you know some of the average costs and interest rates when it comes to mortgages, you’d at least have a start.

So, that’s what we’ve gone away and done – collected some averages and written up some pointers to help you decide how to manage your mortgage.

Average mortgage interest rates

When it comes to mortgages, as with any loan, the interest rate is one of the most important factors. Unlike most other loans though, mortgages are very big – often they’ll be the biggest loan you’ll ever take out in your life.

There are also different types of mortgage, which makes getting the average mortgage interest rate a little tricky.

But we’ve had a go.

Here are the average mortgage interest rates:

3.99% for a 2-year fixed rate 95% loan to value (LTV) mortgage
1.49% for a 2-year fixed rate 75% LTV mortgage
1.70% for a 3-year fixed rate 75% LTV mortgage
4.33% for a Standard Variable Rate
Source: BSA.org.uk, for the tax year 2017-2018

1.99% for a 5-year fixed rate 75% LTV mortgage
2.34% for a tracker mortgage 75% LTV mortgage (these track an interest rate, normally the Bank of England’s base rate, and go up and down depending on what the base rate is doing)
Source: Statista.com, for June 2017

Loan to value is the relationship between the current value of the property that the mortgage is paying for, and the actual amount the mortgage is. The mortgage value divided by the property value = LTV. Don’t be scared of the maths, pull out your phone or use the Which? LTV calculator.

You also need to think about mortgage fees, which can be anything from £500 to £2,000 or more. Some mortgage providers will let you add the fees to the mortgage itself. This means you don’t need to shell out the money when you first get the mortgage.

The con of doing this though is that the interest then applies to the fee, so you end up paying more overall, as well as more per month. Our advice: pay the fees upfront.

Average length of a mortgage

As mortgages are the biggest loan you’re likely to get, they’re often the longest, too.

Mortgages normally take 25, 30 or 35 years to pay back. Historically, the most popular length people opt for is 25 years, but in recent years the 30- and even 35-year mortgages are becoming more popular.

The reason longer mortgages are attractive is because they lower your monthly mortgage repayments. This makes is easier for people to afford a mortgage, helping people to get on the property ladder. Remember though, a longer mortgage means you end up paying substantially more over the lifetime of the mortgage.

Mortgage pay-off times actually vary a bit. This is for a few reasons.

Often people will remortgage every few years. This means you go back to a mortgage lender and thrash out a new mortgage deal, taking into consideration how much of your home’s value you’ve paid off. Sometimes it’s possible to knock a couple of years off the total time you’re paying your mortgage, as you could get a better deal.

Most people though will take the chance to lower their monthly repayments instead of shortening their mortgage term.

Some people also over pay each month on their mortgage. This means that the overall mortgage is lower, which makes the interest charged against it lower. All this means the mortgage itself can be paid off earlier.

Be careful though. Some mortgages charge fees for overpayments, or have a limit of how much can be paid. Go over the limit and you could get charged a fee.

But it’s also important to think about what else your money could be doing.

You could use the money you would put into over paying the mortgage into an emergency savings buffer, so if something goes wrong with the car or even your home, you’d have some money to use to fix it, without having to borrow money from somewhere. Once you have a savings buffer, overpaying on your mortgage can be a low risk investment.

Average monthly payments on a mortgage

How much should you pay on a mortgage each week or month? Of course, it depends on the size of the mortgage, your deposit, the house value and your own incomings and outgoings.

Having said that, the average monthly payments on a mortgage in the 2016-2017 tax year was £671.23 in the UK. That works out at £154.90 a week, or £8,054.80 a year. Source: ONS.gov.uk

It’s really important to make sure you budget, and check you can afford your own repayments – our mortgage affordability calculator can help you out.

Average total cost including interest of a mortgage

When you think about your mortgage repayments, you’ll probably see it as paying for your home. But actually a lot of the money goes towards paying the interest.

This is for two reasons.

One, mortgages are for large sums of money, so the interest charges, especially when you first take out a mortgage, are large. For the same interest percentage rate, larger sums of money get higher interest charges than smaller sums.

Two, mortgages last for many years, so the interest has a long time to grow.

That’s why the interest rate is so important, and why a shorter mortgage can be better. But, no matter the deal you get, lots of your money will be spent on the interest on your mortgage.

Here’s an example.

The average UK house price is £227,000 according to HM Land Registry. If you had one of the average interest rates from the section above, say the 4.33% for a Standard Variable Rate, here’s how your mortgage costs would work out over a 25-year mortgage.

House price: £227,000
Mortgage length: 25 years
Interest rate: 4.33%
Total amount repaid: £381,018
Total paid in interest: £151,018

If you had a slightly lower interest rate, maybe the 1.70% rate for a 3-year fixed rate 75% LTV mortgage, you would actually pay almost £100,000 less in interest:

House price: £227,000
Mortgage length: 25 years
Interest rate: 1.70%
Total amount repaid: £284,247
Total paid in interest: £54,247

If the exact same mortgage was for a 30-year term though, the amount you pay in interest goes back up again:

House price: £227,000
Mortgage length: 30 years
Interest rate: 1.70%
Total amount repaid: £295,522
Total paid in interest: £65,522

In these examples, the interest totals are worked out as if the interest stays the same. In real life, the interest rates on your mortgage could go up every time you remortgage – so every 2, 3 or 5 years, depending on when you change. If you don’t get a new mortgage, the interest rate will reset to the Standard Variable Rate, which is over 4%. All this means that in real life, the total amount you repay on your mortgage could be tens of thousands of pounds higher.

And this is why the average total cost including interest of a mortgage is difficult to spell out. On the average house in the UK, using the average mortgage interest rates, you could repay between £284,247 and £381,018 in total – and if interest rates go up over time, that figure could be £400,000+.

So, it’s important you keep checking your mortgage deal, and keep track of your payments. If you get in trouble with payments, there are places to go to get help.

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