First-time buyers are encountering increased financial pressure from rising mortgage rates and deposit requirements, according to analysis from financial data company Moneyfacts.
The average new mortgage rate now stands at 5.59%, up from 5.47% at the start of July and 4.90% in March. Buyers with low deposits are now being charged more than 6% on their mortgages, the company reports.
Bank Rate pressure
The Bank of England maintained the Bank Rate at 3.75% this week, though a third of Monetary Policy Committee members voted for an increase. Governor Andrew Bailey indicated that a future rise may be necessary to control inflation.
Major lenders including Santander and HSBC have increased both fixed and tracker rate deals, following similar moves by Lloyds Bank last week. Moneyfacts attributes these increases to volatile swap rates, linked to prolonged tensions in the Middle East.
The financial pressures facing first-time buyers come as some homeowners face pressure to sell, potentially affecting overall market dynamics.
Deposit requirements
Rachel Springall, Finance Expert at Moneyfacts, stated: “Interest rates are expected to stay higher for longer and those who delay locking into a fixed rate mortgage could pay the price.”
She noted that first-time buyers able to save a 10% deposit would have more purchasing power and access to cheaper mortgage rates. However, she added: “Borrowers may not even be able to stretch their savings to a 5% deposit, due to the lack of affordable housing.”
The cost of living is expected to worsen in coming months, adding further pressure on the Monetary Policy Committee to consider rate increases. These challenges in the mortgage market follow broader industry pressures, with property firms reporting declining profits amid market uncertainty.
Market outlook
The combination of higher mortgage rates and deposit requirements creates particular challenges for new entrants to the property market. With development activity continuing across the UK, including new housing schemes receiving funding, the affordability gap for first-time buyers remains a key concern for market participants.
The current environment suggests first-time buyers will face continued financial constraints in the near term, with mortgage costs likely to remain elevated and deposit requirements presenting a significant barrier to market entry.
