First-time buyers are facing a shrinking selection of low-deposit mortgage deals as lenders withdraw products and raise rates due to soaring swap costs and uncertainty from the ongoing conflict in the Middle East.
Analysis by Moneyfactscompare.co.uk shows that more than 200 mortgage deals for borrowers with a 5% deposit have disappeared since March 6, marking the largest daily drop since the 2022 mini-budget.
The average two-year fixed mortgage at 95% loan-to-value has risen to 6.10%, while five-year deals are currently around 5.93%.
Across the market, some fixed rates have now exceeded 5.5%, and the total number of residential mortgage products has fallen below 6,000.
Finance expert Rachel Springall stated, “Borrowers with a small deposit will feel disheartened by these rising rates and the diminishing options available.”
These changes come amid expectations that the Bank of England may raise the base rate this year, reversing earlier forecasts for cuts, as the Middle East conflict adds to uncertainty regarding inflation and financial markets.
Spingall added: “This will be a shock to first-time buyers, especially, as many will not be able to build a deposit bigger than 5% due to the cost of living.”
She said: “Saturday saw the biggest daily fall of 52 options since the mini-budget, and 30 more options have gone as of this morning, with nine lost yesterday. On September 28 2022, 52 options vanished in one day.”
She warned that rising rates will be “harsh” for borrowers, she added: “The hikes to rates will add around £1,200 per year in the cost of borrowing £250,000 over 25 years,” if a typical two-year fixed-rate mortgage is taken out now with a 5% deposit, it would have a lower average rate compared to March, when the average two-year fixed-rate mortgage with a 5% deposit was 5.45%.
She added: “It is hoped that the mortgage deals which have been pulled will slowly return, but this will rely on a return in stability to the markets and reaffirmed confidence in the path or interest rate setting.”
Springall added: “It will be essential for borrowers to seek independent advice to keep on top of the mortgage mayhem.”
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