First-time buyers with small deposits face mortgage rates exceeding 6%, placing additional pressure on affordability and property market demand.
The average 5-year fixed rate at 95% loan-to-value has reached 6.07%, according to Moneyfacts, compared with 5.75% for borrowers purchasing with a 10% deposit.
On a £250,000 repayment mortgage over 25 years, the difference would cost a buyer with a 5% deposit almost £600 more annually than someone borrowing at 90% LTV.
The Moneyfacts Average New Mortgage Rate has risen from 5.47% at the beginning of July to 5.59%, having stood at 4.90% at the start of March.
LENDERS REPRICE UPWARDS
Santander and HSBC have increased fixed and tracker rates this week, following similar changes by Lloyds Bank.
Moneyfacts attributed the repricing to volatile swap rates and prolonged tensions in the Middle East, demonstrating that fixed mortgage pricing can change independently of the Bank of England base rate.
Higher borrowing costs risk reducing first-time buyers’ purchasing power and could affect sales agreed in areas where this group accounts for a large proportion of demand.
Rachel Springall, finance expert at Moneyfacts, says: “First-time buyers who can save a 10% deposit will not only have more purchasing power, but they will also widen the choice of cheaper mortgage rates.”
However, she acknowledged that high property prices meant some buyers would struggle to accumulate even a 5% deposit.
SVR BORROWERS COULS SAVE £2,800
The average standard variable rate currently stands at 7.13%, compared with its record high of 8.19% during November and December 2023.
Moneyfacts calculated that a typical borrower could save approximately £2,800 annually by moving from an expensive reversion rate to an average 5-year fix.
It also estimated that a 0.25 percentage-point increase in mortgage pricing would add around £450 annually to repayments on a £250,000 mortgage over 25 years, while a 0.50-point increase could add approximately £900.
Lenders have introduced higher-LTV products to address deposit barriers, including 98% mortgages from Leeds Building Society and Santander and £5,000-deposit deals from Yorkshire Building Society and Lloyds Bank.
Springall says broker advice was particularly important because higher-LTV products could carry complex criteria and may exclude new-build properties.
She adds: “Borrowers who apply direct for a loan could face disappointment without good guidance.”
