The average homeowner looking to remortgage in the current market could pay over £23,000 more in interest over the lifetime of their new mortgage term, according to Octane Capital.
Last week, the Bank of England implemented its 13th consecutive interest rate increase, bringing the base rate up to 5%.
The current rate of 5% is the highest seen in over 15 years since April 2008.
Octane Capital analysed what this means for homebuyers and owners when it comes to the cost of borrowing in order to climb the property ladder.
According to Moneyfacts, the average rate for a 5-year fixed term mortgage now sits at 5.83%, up from 5.17% since the start of June.
Based on the current average house price of £286,489 and a 25-year term mortgage at a 75% loan-to-value (LTV), Octane Capital found that the average homebuyer was facing a monthly mortgage repayment of £1,362 – £85 per month more compared to the start of the month.
Over the lifetime of a 5-year fixed mortgage term, this would see them pay £81,729, with £59,621 being interest on their mortgage at the current average rate of 5.83%.
That is an increase of £6,998 in interest paid over the five years when compared to those who committed to the same mortgage at the start of June at the lower rate of 5.17%.
However, those looking to remortgage were set to see the biggest increase in costs.
Five years ago, the average homebuyer secured a 5-year fixed term at an average rate of 1.99%.
This saw them pay £725 per month, or £43,505 over the 5-year fixed term, with £15,704 of this total paid in interest.
Octane found that now, remortgaging to another 5-year fixed term on the remaining mortgage balance £143,465 at the average rate of 5.83% would see their average monthly mortgage repayment increase to £1,014 – a jump of £289 per month.
Despite borrowing less, the full cost of their mortgage during their second 5-year term would also increase to £60,829 – a £17,324 jump.
A notable £38,821 of this £60,829 would be paid in interest, meaning the interest paid on their second 5-year term will increase by £23,117.
Jonathan Samuels, CEO of Octane Capital, said: “Homebuyers are facing a notable increase in the cost of securing a mortgage as a result of increasing interest rates and this means they will be paying a substantially higher level of interest over their fixed term, while also paying less capital back on the value of their home.
“However, it’s those currently coming to the end of a fixed term who stand to see the biggest hike, having previously locked in a far lower rate.”
He added: “For those coming to the end of a 5-year fixed term, the monthly cost of their mortgage is likely to increase by hundreds of pounds a month.
“Not only this, but the average homeowner will now be paying upwards of £23,000 more in interest over their second 5-year term, despite their mortgage balance being less than when they originally purchased.”
