Homebuyers may soon start to see some relief from borrowing costs, thanks to the recent cut in the base rate at the beginning of August, as indicated by Octane Capital.

Already, the average monthly mortgage payment has decreased by £116 since the base rate was held steady in August of last year.

Octane Capital conducted a thorough analysis of how monthly mortgage costs have fluctuated since interest rates began their upward climb, particularly after rates stabilized at 5.25% in August of the previous year. Their study also emphasized the crucial role that a larger deposit plays in reducing monthly borrowing expenses.

Back in December 2021, when the tide of interest rates started to turn, the average homeowner was shelling out £888 each month to cover a full mortgage repayment, with the typical mortgage rate then resting at a modest 1.71%.

Fast forward to August 2023, when the base rate reached its zenith at 5.25%, and the average mortgage rate had surged to 6.35%. This spike drove the typical monthly mortgage repayment up to a staggering £1,467—representing a 64% increase, or an extra £579 each month.

However, despite the base rate remaining frozen through August, this freeze did manage to bring a semblance of stability to the mortgage market. This newfound stability allowed lenders to gradually trim borrowing costs.

According to Octane Capital's findings, the average mortgage rate has dipped to 5.21% over the past year, which has led to a decrease in the average full monthly mortgage repayment, now down to £1,351. This reduction comes despite a rise in the average home price.

Compared to the scenario in August last year, when the base rate first hit 5.25%, the full monthly mortgage repayment has decreased by 9%, or £116 per month.

With the Bank of England reducing the base rate for the first time since 2020 at the start of this month, prospective buyers might anticipate further declines in borrowing costs in the near future.

Nevertheless, Octane Capital underscores the significant impact that a larger deposit can have when purchasing a home.

Today, a buyer placing a 40% deposit can expect to pay £822 in monthly repayments and secure an average mortgage rate of 3.76%.

In contrast, those who opt for a 20% deposit are looking at an average mortgage rate of 4.13%, with monthly payments amounting to £1,140.

On average, each additional percentage point in deposit can save a buyer £16 per month on mortgage repayments. So, moving from a 20% to a 25% deposit could potentially reduce monthly payments by approximately £80.

Jonathan Samuels, CEO of Octane Capital, remarked: “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 fact, 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.”