First-time Buyers Left Behind as Mortgage Rate Cuts Favour Existing Homeowners
As the Bank of England cuts the base rate to 5 per cent, lenders have responded by cutting mortgage rates to below 4 per cent for five year fixed deals. However, first-time buyers are barely seeing the benefits of these rate cuts. According to analysis by Which?, first-time buyers with small deposits have seen the smallest reductions since the start of July.
First-time buyers are struggling to get on the property ladder due to high mortgage rates and deposits.
The analysis shows that for those taking out a five-year 95 per cent LTV mortgage - meaning they have a 5 per cent deposit - the cheapest deal dropped by just 0.06 percentage points, whereas those taking out a 60 per cent LTV deal saw a 0.39 percentage point drop. This is because many first-time buyers will be renting and have been hit by soaring costs, making it harder to save up for a deposit.
According to the Office for National Statistics (ONS), average UK private rents increased by 8.6 per cent in the 12 months to June. This has made it even harder for first-time buyers to get on the property ladder.
Nick Mendes of brokers John Charcol said: “It’s true that while we’re seeing mortgage rates trend downward, the most attractive deals are often reserved for those with larger deposits, which typically excludes many first-time buyers.”
Mortgage rates are falling, but not for everyone.
However, there are options available to help first-time buyers. Some lenders are now offering mortgages at higher income multiples - allowing them to borrow loans of up to six times their income - which can help overcome borrowing barriers. Additionally, low, or even zero deposit mortgages are becoming more common, aimed at assisting those who struggle to raise a deposit through the likes of Skipton Building society and Accord.
First-time buyers can also benefit from consulting with a mortgage broker who can help identify the best options tailored to an individual’s financial situation.
Rates Falling Slower After Base Rate Cut
Although it may seem like lenders have been continually cutting rates since the interest rate cut, the overall drop has been minimal. Average rates on two-year and five-year fixed-rate mortgages have fallen by just 0.03 percentage points since last week’s base rate cut, according to Which? analysis of Moneyfacts data.
In fact, lenders were reducing their rates throughout July as borrowing costs dropped in anticipation of the predicted base rate change.
Mortgage rates are not falling as fast as expected.
The average two-year fix has fallen by 0.21 percentage points since 1 July, from 5.95 per cent to 5.74 per cent. Meanwhile the average five-year deal has dropped by 0.17 percentage points from 5.52 per cent to 5.36 per cent.
Ele Clark, Senior Money Editor at Which?, said: “Many lenders chose to cut their rates before the Bank of England’s decision. The wait for cheaper mortgage rates will be particularly agonising for first-time buyers with small deposits, who are often the last people to benefit from rate cuts.”
Higher Deposit and Equity Holders Seeing Biggest Cuts
However, it is hoped that increased competition between mortgage lenders could result in rates falling further in the coming days and weeks.
Those with the highest deposits and equity are already seeing the biggest benefits. For example, some lenders are offering mortgages at higher income multiples - allowing them to borrow loans of up to six times their income - which can help overcome borrowing barriers.
As the mortgage market continues to evolve, it is essential for first-time buyers to stay informed and explore their options. With the right guidance and support, they can navigate the complex mortgage landscape and find the best deals available.
