The Cost of Getting on the Property Ladder: How Mortgage Rates are Affecting First-Time Buyers

The Bank of England’s recent decision to hold interest rates at 5.25% has sparked concerns among first-time buyers, who are already struggling to get onto the property ladder. With mortgage rates at a 16-year high, many potential homeowners are finding it increasingly difficult to afford their dream home.

A graph showing the rise in mortgage rates and its impact on first-time buyers

According to recent data from Rightmove, the average cost of a first-time buyer’s mortgage payments has surged by more than £400 a month during the last five years, representing a rise of 61%. This significant increase has massively outpaced rises in wages over the same period, making it even harder for first-time buyers to save for a deposit.

The Simple Stats

• The monthly figure has leapt from an average of £667 per month to some £1,075.
• The average five-year fixed mortgage rate for someone buying with a 20% deposit is now 5.09%.
• The average first-time buyer home now costs £227,757, which is up 19% since 2019.
• Over the same five-year period, average wages are up by 27% compared to 61% increase in mortgage costs.

 A chart illustrating the rise in mortgage rates and its impact on first-time buyers

Experts are Urging the Bank of England to Slash Interest Rates

Tim Bannister, a property expert at Rightmove, is urging the Bank of England to cut rates to ease the pressure on first-time buyers. He argues that this will have an almost immediate benefit for those trying to get onto the ladder, should it lead to lower mortgage rates.

Some first-time buyers are looking at extending their mortgage terms to 30 or 35 years to lower monthly payments, or looking at cheaper homes for sale so that they need to borrow less.

Tembo Offers a Glimmer of Hope

In more positive news, Tembo has added a cashback bonus payment of up to £300 to its cash Lifetime ISA. Customers transferring a Lifetime ISA of £5,000 or more to Tembo from another provider will receive the cashback. The offer is valid until 31 July.

The cashback bonus will be paid to the cash Lifetime ISA account six months after funds are received by Tembo. The lender requires customers to hold their cash Lifetime ISA for a minimum of 12 months for the offer to be valid.

 A graphic illustrating the benefits of Tembo’s cashback bonus

Mortgage Rates: A glimmer of Hope?

Barclays’ recent decision to cut mortgage rates has sparked hopes that others will follow. The reductions come despite the fact that the Bank of England refused to cut the base rate from its 16-year high of 5.25% last week.

Industry experts said the fall in rates reflects the fact that swap rates, which are the interest rates at which financial institutions lend to one another, have come down in recent days.

A Barclays branch

The fall in rates has brought huge relief to borrowers across the country. With the Monetary Policy Committee (MPC) expected to reduce the base rate in the coming months, many first-time buyers are hoping that mortgage rates will continue to fall, making it easier for them to get onto the property ladder.