Editor's note: This brief was summarised by The Property AI Newsroom from a report by PropertyWire. Read the original article for full details.

First-Time Buyers Face Higher Mortgage Rates and Deposit Hurdles

First-time buyers in the UK are experiencing increased financial pressure due to rising mortgage rates and higher deposit requirements, according to analysis from Moneyfacts. The average new mortgage rate has risen to 5.59%, up from 5.47% at the start of July and 4.90% in March.

Moneyfacts reports that buyers with low deposits are now being charged mortgage rates above 6%. The Bank of England kept the Bank Rate at 3.75% this week, though a third of Monetary Policy Committee members voted for an increase. Governor Andrew Bailey indicated that a future rate rise may be necessary to control inflation.

Major lenders such as Santander and HSBC have increased both fixed and tracker mortgage rates, following similar moves by Lloyds Bank. Moneyfacts attributes these increases to volatile swap rates, which are linked to ongoing tensions in the Middle East.

The financial pressures on first-time buyers come as some homeowners face pressure to sell, which could affect overall market dynamics. Rachel Springall, Finance Expert at Moneyfacts, noted that first-time buyers able to save a 10% deposit would have more purchasing power and access to cheaper mortgage rates. However, she also stated that some borrowers may struggle to save even a 5% deposit due to the lack of affordable housing.

The cost of living is expected to worsen in the coming months, adding further pressure on the Monetary Policy Committee to consider rate increases. These mortgage market challenges follow broader industry pressures, with property firms reporting declining profits amid market uncertainty.

The combination of higher mortgage rates and deposit requirements is creating significant challenges for new entrants to the property market. While development activity continues across the UK, the affordability gap for first-time buyers remains a key concern for market participants. The current environment suggests that first-time buyers will continue to face financial constraints, with elevated mortgage costs and deposit requirements acting as barriers to market entry.