First-time buyer mortgage rates drop to 2019 prices

Mortgage deals for first-time buyers are now cheaper than before the pandemic, despite banks hiking their rates for everyone else.

Younger buyers with small deposits were largely locked out of the market last year as lenders pulled deals and pushed up prices for riskier borrowers.

But first-time buyers are now benefiting as lenders compete for their business to hit their annual targets.

Mark Harris, of the mortgage broker SPF Private Clients, said: “Greater competition, in what is still an underserved segment of the market, has forced down pricing on small deposit mortgages.”

The average two- year fixed- rate mortgage with a 5pc deposit is now 3.13pc, according to Moneyfacts, an analyst. This is down from November last year, when it was 4.74pc, and lower than the 3.27pc it was in the same month in 2019.

It is also the case for longer deals. Now, a five-year fix for first-time buyers with a 5pc deposit charges 3.41pc on average, lower than the 3.6pc in November last year, and 4.21pc in the same month in 2019.

The same price drops have not been afforded to borrowers with more equity, however. Banks and building societies have been raising interest rates on deals needing chunkier deposits for the past two months.

It began in the run up to an anticipated Bank Rate rise by the Bank of England earlier this month, which ultimately failed to materialise, but continued even after Threadneedle Street maintained its historically low rate of 0.1pc.

“Lenders probably have room to keep bringing prices down for first-time buyers, while still making a profit,” Mr Harris said.

“This isn’t the case with bigger deposit deals, because these have been very aggressively priced since the summer.”

If the Bank Rate is increased next month, it will be the second December rise in 45 years.

Doug Miller, of the broker Lansdown Financial Services, said that lenders often cut prices ahead of the festive season. He added that it could be a “very opportunistic time of year” to secure a mortgage deal.

“All banks and building societies will have targets for each year, based on the number of people and amount of mortgage lending they want to approve,” Mr Miller said.

“As we head towards the end of the year many lenders will start offering cheaper deals to boost the amount of applications they receive and hit these targets, with rates then being withdrawn as we head into the new year.”

Lenders have also contended with a slowing property market and borrowers with small deposits who need larger mortgages, typically at higher rates, are more lucrative.

Mr Miller added: “The key thing to remember is that even once you have applied, you can still change your mortgage if a better deal becomes available.”