Looking at the cost of mortgage from a different perspective (e.g. monthly average interest payment)

Looking at the cost of mortgage from a different perspective (e.g. monthly average interest payment)

Comparison websites

Go to any comparison website (e.g. comparethemarket.com), get a quote (e.g. first time buyer) on a property worth £125,000 and borrowing of £125,000 (to make numbers easier) for 25 years. And you'll get, for example:

Comparison website

The small print

Representative example

The representative example shows "Representative example: Assumed borrowing of £125,000 over 25 years, representative 3.0% APRC. Total amount payable: £177,474.41. Includes interest of £51,359.41, Valuation fee of £1,115, Booking fee of £0 and Administration fee of £0." Based on these numbers, table shows in more details the brake down:

Representative example:

Representative example

It's clear that it's just an example but... why not show the actual total payable (inc. fees) of the quote? Are you supposed to feel that the monthly cost is not that high at all?

Interest (monthly average)

Monthly average interest payment is an interesting number, because it tells you whether you are better off renting or buying.

Case 1

In our case, if you are currently renting out for more than £171.81 (e.g. for a spare room), you are better off buying a house in the long term as you won't find many spare rooms under that price. Also, take into account that properties are likely to hold on to their value (if not grow).

Case 1

Case 2

If the numbers were the same but the interest rate was 5% your monthly average interest payment rate would be £314.07. In this case, you could potentially be better off renting out (but only a spare room).

Case 2

Case 3

If the numbers were the same but the interest rate was 10% your monthly average interest payment rate would be £719.20. In this case, even a family could potentially be better off renting out rather than buying. But again, the savings (inc. investing these savings) would need to be greater than the potential growth in house prices over the period of 25 years.

Case 3

These examples shed some light on whether it's better to save up and then buy a house whilst renting or get a mortgage and pay the interests.

Interest rate was historically low in the UK in the past several years but the recent increase could be a sign that the interest rate are going to increase in the coming years.

If you are making a decision now, you can use the above examples or try yourself using this calculator Karl Jeacle's - Mortgage Calculator. Also check other sources to better understand the housing market.