Curious mortgage stats from the Guardian
Posted by Christie Malry on March 21, 2011 at 8:30 pm
The Guardian has a little article about how our finances are about to be squeezed by the upcoming budget. And here's what's happening to mortgages:
Thanks to the Bank of England base rate staying at 0.5% for the past two years, monthly mortgage payments have dropped to their lowest levels in 10 years. The average mortgage borrower, according to the Council of Mortgage Lenders, owes £109,110 at an interest rate of 3.5%. The vast majority of mortgages are set up on a repayment basis, and the monthly premium for a loan this size would be £546.23. However, most experts expect the base rate to rise very soon, which will increase the cost of all variable rate deals. Each 0.25% rise in base rate will add £15 to a £109,110 repayment loan, according to moneysupermarket.com.
Something's not right here. The £546.23 figure only makes sense if you assume a remaining term of 25 years. But there's no way that the 'average mortgage borrower' can have a term of 25 years.
If we assume that the average mortgage is 25 years at the onset and that most people, when remortgaging, don't extend the term, and that even if they do others will pay off early, then 12.5 years is a better estimate of the remaining term of the 'average mortgage'. And a mortgage of £109,110 at 3.5% for 12.5 years has a monthly repayment of approximately £899, not £546.23, a difference of over £353.
Generally, you'd expect the personal finance staff at a major national newspaper to spot this sort of thing...
"Generally,You'd expect the personal finance staff ....". Er, this is the Guardian we're talking about not the FT. Didn't they run the story of Barclays only paying 1% corporation tax....
I would also question the statement that the vast majority of mortgages are set up on a repayment basis - it used to be the case that about a third were interest only and i daresay that there are some which are a mixture as well. Perhaps the best place to look for amounts spent on mortgaages are the various expenditure survey statistics. I know you have a down on the Guardian but in my view much of the financial press has a limited ability to get beyond what is already said for them in the many highly spun press releases that they receive.
Look at pages 21 to 24 here http://www.statistics.gov.uk/downloads/theme_soci... your £899 figure looks to be way off the mark as do the CML figures for average mortgages (is that figure for the average advance in recent times?)
Something isn't right, for sure. I'd trust the ONS before I'd trust the industry lobby group
repayment mortgage payments don't decrease over time - so the remaining term of the loan is irrelevant to the monthly payment.
someone taking out a new 25 year loan will pay the same each month as someone who's 12.5 years into a loan on the same terms.
am i missing something, or have you - on this occasion - been a little to quick to fire a shot at the guardian?
I don't think so. They told us what the average borrower owes on their mortgage, not what they originally borrowed. And if you're only given the amount owed, the remaining term is then pertinent to the monthly payment.
I suppose it's possible that they meant to refer to the average amount borrowed at inception. That's not what the article says, though.