Bad news for first-time buyers, as rates rise from record lows
Borrowers have welcomed the record low mortgage rate environment, but homebuyers with smaller deposits are starting to see small rises to the rates they’re offered.
Figures from data site Moneyfacts have revealed that while rates are still competitive for those with large deposits, the average two-year fixed rate at 95% loan-to-value (LTV) has increased by 0.10% since April and 0.35% since the start of the year.
|Average Two-Year Fixed Rate||Jan-17||Apr-17||Jul-17|
Charlotte Nelson, finance expert at moneyfacts.co.uk, said this is disappointing news for first-time buyers who have struggled to gather enough cash to put towards a deposit, only to now find rates are starting to rise.
This means borrowers looking for a two-year fixed rate at 95% LTV will find that monthly repayments will be £29.10 more expensive if they take out a mortgage today compared to the start of the year (based on £150,000 mortgage over 25 years on a repayment-only basis).
She added: “This rate reversal is not just affecting two-year fixed rates, either, with the average five-year rate at 95% LTV increasing from its lowest ever point of 4.37% in January 2017 to 4.55% in July.
“The increase can be largely explained by the inflationary pressures the economy is facing. As inflation rises, borrowers’ incomes get eaten away and the probability of a borrower defaulting rises. The added speculation of a possible base rate rise in the near future has seen providers re-evaluate the lows that borrowers were starting to get used to.”
However, Nelson said it’s not all doom and gloom, as there are more deals on the market now than at any time since the financial crisis.
“With the Bank of England scrutinising high LTV lending, this upward pressure on rates looks like it may continue. So borrowers looking for a deal at a higher LTV will need to act now if they want to make the most of low rate deals before their time is up,” she said.