Average five-year fixed mortgage rates for first-time buyers with only a 5% deposit have climbed to 6.07%, new analysis from Moneyfactscompare.co.uk shows. Major lenders including HSBC, Santander and Lloyds Bank have increased mortgage rates in recent days as wholesale borrowing costs stay elevated.
For a typical borrower taking out a £250,000 mortgage over 25 years, having just a 5% deposit instead of 10% now costs nearly £600 a year extra in repayments.
The broader mortgage market is also becoming more expensive. The Moneyfacts Average New Mortgage Rate has risen to 5.59%, up from 5.47% at the start of July and well above the 4.90% seen in March.
Expert warns borrowers 'could pay the price'
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: "Interest rates are expected to stay higher for longer and those who delay locking into a fixed rate mortgage could pay the price."
She added that despite fixed rates rising, borrowers could still save around £2,800 a year by moving off a standard variable rate onto a fixed deal. The average SVR is now 7.13%, meaning someone with a £250,000 repayment mortgage pays around £1,787 a month compared to £1,559 on an average five-year fix.
Potential Bank Rate rise adds further risk
The Bank of England is expected to hold interest rates at its next meeting, but experts warn a future rise could add hundreds to annual mortgage costs. According to Moneyfacts, a 0.25 percentage point increase in Bank Rate would add around £450 a year to repayments on a typical £250,000 mortgage, while a 0.5 point rise would cost borrowers about £900 more annually.
Those on tracker mortgages would see their repayments increase immediately if the Bank raises rates, Ms Springall warned.
First-time buyers urged to consider 10% deposit
Ms Springall also said: "This will also worry new buyers who have a small deposit, as the average five-year fixed mortgage rate at 95% loan-to-value recently rose above 6%, now at 6.07%."
She added: "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. Those who borrow £250,000 over 25 years will pay £600 less on their mortgage per year compared to the average rate available to borrowers with a 5% deposit."
However, many aspiring homeowners cannot build even a modest deposit due to high house prices. Lenders have introduced products requiring tiny deposits, such as 98% loan-to-value mortgages and deals needing just £5,000 upfront, though these often come with restrictions and higher borrowing costs.
Mortgage rates more than double since 2021
The latest figures underline how quickly borrowing costs have risen over the past five years. According to Moneyfacts, average rates have increased as follows: standard variable rate from 4.41% to 7.13%; two-year fixed from 2.55% to 5.62%; five-year fixed from 2.78% to 5.66%.
For many first-time buyers, the biggest hurdle is no longer just saving a deposit but finding a mortgage they can still afford once they have done so.
