Skip to content

How first-time buyers could be affected by inflation and rising interest rates

Looking to climb onto the property ladder for the first time? Bad news: the cheapest deals are starting to creep up in cost. This unfortunate development can be pinned on inflation and interest rates, so understanding the current state of play in the property market is key for anyone looking to become a first-time buyer.

With this in mind, the team behind has broken down exactly how some first-time buyers could be affected by inflation and rising interest rates.

Rising interest rates – what’s the big deal?

Rewind to six months ago; it’s nearly Christmas, the sun goes down at about 3:30pm every day and 0.1% interest rates aren’t causing anyone any bother. It was an easier time. Since then, the Bank of England’s base rate has increased four times, rising from 0.1% to 1%.

Although the first two rises have had relatively little impact on low-deposit mortgages, the third and fourth increases both resulted in rates on 90% and 95% mortgages increasing. Also, the Bank of England has already confirmed it will increase the base rate again, with the next base rate announcement scheduled for 16th June. However, there are ever-growing concerns that this might come sooner than expected. Therefore, if you’re thinking of locking in a new mortgage, sooner might be better than later!

So, why is inflation rising?

You’d think that reaching the tail end of COVID-19 global pandemic would create an economic boom, as consumers get back on the high street and life starts moving again. Unfortunately, this hasn’t been the case; with customers flooding to the shops after being stuck inside for so long, businesses are struggling to keep up with the surging demand. This, coupled with Russia’s invasion of Ukraine jeopardising energy and food supplies, has caused prices across the board to rise.

How are first-time buyers affected?

Truthfully, there’s no one-size-fits-all answer when it comes to how first-time buyers will be affected by inflation and rising interest rates. It mostly depends on the type of mortgage you already have or are looking to get. If you’re steering towards a variable-rate mortgage, then the Bank of England’s base rate changes will affect your repayments. This is especially the case for tracker mortgages, as they’re based on the Bank of England’s base rate.

On the other hand, existing fixed-rate mortgages won’t feel the effects of any base rate changes until they’re shifted to the lender’s standard variable rate (SVR). However, the fun and games quickly stop there as SVR mortgages are very susceptible to bumping up in cost.

What should first-time buyers do?

Firstly, it’s essential first-time buyers stay up to date on inflation and rising interest rates and educate themselves on how different types of mortgages are affected by the Bank of England’s base rate changes. By doing so, you might be able to put yourself in a more favourable position when you’re trying to get on the property ladder.

Secondly, you’ll need to thoroughly research the best rates available – there are still a handful of cheaper deals out there, regardless of the size of your deposit, but bear in mind that they usually come with restrictions. The cheapest rates are undoubtedly the most tempting, but you’ll need to check the full cost of the mortgage before committing.

For those borrowers with variable-rate deals – who are directly affected by base rate changes – it might be worth looking into the fixed-rate deals available when the time comes to remortgage.

Also, we’d encourage first-time buyers to take full advantage of Government schemes while they’re still available to them, such as Help to Buy. The Help to Buy scheme offers an equity loan that can cover from 5% and up to 20% of the property purchase price of your newly built home. Typically, the more equity you have, the better off you’ll be, and it’ll boost your chances of securing a lower interest rate. However, new applications for the Help to Buy scheme must be made by October 31 at the latest.

Pete Mugleston, MD and Mortgage Expert for, commented:

“Unfortunately for first-time buyers, there’s a bit of a bleak forecast on the housing market horizon right now. The combination of inflation and rising costs as the world comes out of the pandemic has put the economy in a really tough position, hence the Bank of England’s interest rates increasing ten times over in the last six months. As such, it’s as important as ever for first-time buyers to stay aware of what’s going on and how it could potentially affect them.

That being said, with schemes like Help to Buy still available and dedicated mortgage brokers who specialise in the first-time buyer market on hand to help, there are still options and support accessible for those looking to buy their first property.”