Mortgage costs leap for first-time buyers

At the same time as borrowers with larger deposits enjoy record low rates

Mortgage rates for first-time buyers are creeping up over fears that house prices may fall.

Over the past six months lenders have slashed rates to record lows for borrowers with larger deposits.

But the average rate for someone with a 5 per cent deal rose from 3.89 per cent in January to 4.24 per cent, according to Moneyfacts.

Over the past six months the average rate for someone with a 5 per cent deal rose from 3.89 per cent in January to 4.24 per cent +1

For a borrower with a 10 per cent deposit it has risen from 2.72 per cent to 2.77 per cent.

Banks and building societies told the Bank of England they want to lend less to those with smaller deposits over the next three months.

What next for mortgage rates: Should you grab a cheap fixed deal?

UK Finance says lenders are worried about house prices growing at less than two-thirds the pace they were a year ago.

If prices fell, those with smaller deposits may be trapped in negative equity, unable to move.

Andrew Montlake, of mortgage broker Coreco, says: ‘Lenders may increase rates more for first-time buyers.’

Can you find a cheaper mortgage?

First-time buyer mortgage rates may have risen on average, but the best deals remain historically cheap.

Even those with a 10 per cent deposit can access very low rates. Chelsea BS has a two-year fix at 1.83 per cent for them, while Atom Bank offers 1.85 per cent.

Over five years they can fix at 2.55 per cent with Atom Bank and 2.59 per cent with Hinkley and Rugby.

For existing homeowners, record low mortgage rates mean many could save hundreds of pounds a year – or even more – by switching.

The lowest two-year fixed rate is at 0.99 per cent from Yorkshire Building Society, while the lowest five-year fix is offered by Chelsea BS at 1.64 per cent. Those are for borrowers with big deposits or equity, but even at 75 per cent loan-to-value it is possible to fix for five years at 1.74 per cent with Atom or 1.75 per cent with Yorkshire BS.

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