UK Mortgage Rates Soar for First-Time Buyers with Small Deposits

First-time buyers in the UK are facing another challenge as mortgage rates continue to rise. The average rate for those with just a 5% deposit has increased, leaving many struggling to save enough for a bigger deposit.

New analysis from Moneyfactscompare.co.uk shows that the average five-year fixed mortgage rate for borrowers with a 5% deposit has risen to 6.07%. This means that for a typical first-time buyer borrowing £250,000 over 25 years, having only a 5% deposit instead of 10% now costs almost £600 per year extra in mortgage repayments.

According to Moneyfacts, the wider mortgage market is also becoming more expensive. The 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.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, warns that borrowers could face another hit if the Bank of England is forced to increase interest rates later this year in response to stubborn inflation and rising living costs. She advises first-time buyers to lock into a fixed rate mortgage as soon as possible to avoid higher repayments.