‘Mortgage mayhem’ could mean shock for first-time buyers, website warns

First-time buyers are facing a tumbling choice of low deposit deals as lenders scramble to make changes to their mortgage ranges, analysis has found.

More than 200 deals for borrowers with a 5% deposit have disappeared since March 6, according to Moneyfactscompare.co.uk, with the biggest daily fall in options since the mini-budget having been recently recorded.

Lenders have been increasing their rates and withdrawing deals in recent weeks as swap rates, which are used by lenders to price mortgages, have increased.

The conflict in the Middle East has prompted changing expectations for inflation and for the direction of the Bank of England base rate. Expectations that the base rate was set to be cut have gone into reverse, with some predictions of rises this year.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said borrowers with a small deposit will “feel disheartened to find the average rate on a two-year deal at 95% loan-to-value has risen to 6.10%, with the five-year equivalent not too far off the 6% mark at 5.93%”.

She 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.”

Ms Springall said 204 deals have disappeared at the overall 95% loan-to-value tier since March 6.

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.”

Ms Springall said rising rates will be “harsh” on borrowers, adding: “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 deal was taken out now with a 5% deposit, compared with the start of March when the average two-year fixed-rate 5% deposit rate 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.”

Moneyfactscompare.co.uk said the availability of homeowner mortgages has shrunk by around a fifth (21%) since March 6.

Ms Springall added: “It will be essential for borrowers to seek independent advice to keep on top of the mortgage mayhem.”

Across the market generally, some average fixed mortgage rates have now topped the 5.5% mark, while the number of residential products to choose from has dipped below 6,000.

Across all deposit sizes, the average two-year fixed homeowner mortgage rate on the market on Tuesday morning was 5.51%, Moneyfacts said, up from 5.43% on Monday.

The average five-year fixed homeowner mortgage rate on the market on Tuesday morning was 5.52%, up from 5.45% on Monday.

Moneyfacts said there were 5,856 residential mortgage products available. This is down from 6,144 on Monday.