Could my mortgage cost me more than I earn from rising house prices?

When people buy a house, they often think they are making a good investment because prices tend to rise in the long run.

But unless they are a cash buyer, they will need a mortgage from a lender to purchase a property.

They will then spend decades paying off that mortgage, with a large portion of their monthly payments going towards interest.

While it’s easy to know how much they’ve made from the increase in home prices when they go to sell, homeowners typically pay less attention to how much the mortgage has cost them in the meantime.

With mortgage rates rising over the past two years, this means the total amount repaid is likely to have exceeded the gains from house price growth over that period.

That doesn’t mean buying a house is necessarily a bad idea, especially if the alternative is paying increasingly higher rents – but owners may be interested in knowing how much they need to increase their property to fully cover their mortgage costs. compensate.

Thanks to new research shared exclusively with This is Money by personal finance comparison site Finder, we can reveal just that.

The analysis is based on someone buying the average UK home with a 25 per cent deposit on a 30-year mortgage term, while paying the average mortgage rate over the last 30 years, which is 4.25 per cent when also taking into account the typical costs associated with refinancing.

The average British home currently costs £281,913, and someone buying it with a 30-year mortgage would end up spending £445,000 on the house and mortgage, according to Finder.

For the property to reach this valuation, the asking price would therefore need to increase by 58 per cent, which equates to over £163,000 in monetary terms over 30 years.

The good news for potential home buyers, however, is that the average house price in Britain has risen by a whopping 416 percent over the past thirty years.

If this were to happen again, a house worth £281,913 today would be worth £1,454,981 in 2054, according to Finder.

What if the mortgage interest rate remains at the old level?

Mortgage interest rates are currently slightly above the 30-year average.

According to broker L&C Mortgages, the most popular mortgage product among borrowers at the moment is the two-year fixed interest rate.

The current average two-year fixed mortgage rate for someone buying with a 25 percent down payment is 4.97 percent, according to Finder.

If this rate remained the same for the next thirty years, the total amount someone would have to pay would rise to £477,900. This amounts to an additional €90.65 per month, and a total of more than €32,600.

> What next with the mortgage interest rate and for how long should you fix the mortgage interest rate?

According to Moneyfacts, the average two-year fixed rate mortgage for all deposit sizes is currently higher at 5.81 percent.

If this were the average rate for the next 30 years, the total amount someone would have to pay when buying an average home would be €517,705, which equates to an additional €72,705 over the life of the mortgage, without taking into account bear extra costs.

For house prices to match mortgage costs, they will need to rise by about 84 percent over the next thirty years.

Will house prices continue to rise as they have in the past?

If house prices are to rise as quickly over the next thirty years as they have over the past thirty years, they will have to rise by an average of about 5.63 percent annually, taking into account the effect of the annual increase.

This may seem entirely possible. However, many of the leading house price forecasts paint a bleaker picture, at least for the next five years.

For example, estate agent Savills predicts that average UK house prices will rise by 17.9 per cent in the five years to 2028.

Meanwhile, Knight Frank predicts that average UK house prices will rise by 20.5 percent over the same period.

Real estate company JLL predicts an even flatter picture: average house prices will rise by 14 percent in 2028, which amounts to an average increase of 2.7 percent per year.

Ultimately, house price predictions should be taken with a grain of salt. Predicting the next five years is difficult enough, but accurately predicting the next thirty years is virtually impossible.

Is buying a house a responsible investment?

Owning your own home is often seen as more than just an investment; it’s a British obsession, and many consider ‘getting on the ladder’ one of life’s biggest milestones.

Buying a home is often considered a sign of independence, security and success.

Owning is also often considered a preferred alternative to renting, which often means paying increasingly higher rents to a landlord who can ask tenants to leave at any time, with as little as two months’ notice.

But from a purely financial perspective, buying and owning a home involves more than just the cost of a mortgage.

Buying also involves some additional costs, such as legal fees and surveyor fees. For those moving, there are also estate agent fees and in most cases stamp duty involved on future purchases.

Then there are the ownership costs, which include repairs and maintenance, or more often service costs and ground rents if it is a leasehold property.

Although purchasing a property can be viewed as an investment, ultimately it should not be done for that reason alone.

Liz Edwards, personal finance expert at Finder, said: ‘Getting into the housing market has generally been a good investment for Brits, but there are some important things to consider before you buy.

‘First, don’t assume that previous house price increases will continue.

‘It is even possible that prices will experience a prolonged dip; for example, prices fell and did not recover for almost eight years between July 1989 and April 1997.

‘Secondly, it is worth remembering that the price of a house is not the only cost item. There are additional costs such as stamp duty, lawyer fees and mortgage costs.

‘And as this research has shown, mortgage costs add a significant amount to the total cost of a home, especially if interest rates rise in the future.’