‘House-buying plans put on hold’ as deposits quadruple

FIRST-time buyers must now quadruple their deposits to get on to the housing ladder as mortgage rates stick at 6.5 per cent, research shows.

Purchasers must now pay for 43 per cent of their first home in cash if they want to keep their repayments the same as when average mortgage rates were 2 per cent, according to Hamptons estate agents. This means the average firsttime buyer would need to find an extra £81,510 in cash.

When mortgage rates were at 2 per cent, a first-time buyer purchasing a typical £247,000 home with a 10 per cent deposit paid £941 per month on a 25-year mortgage.

If the buyer purchased the same house today, with a mortgage rate of 6.5 per cent, they would need to have a 43 per cent deposit in order to keep their monthly payments at £941.

Even with rates at 6 per cent, firsttime buyers would need a 41 per cent deposit – an extra £74,100.

At the start of July 2020, the average rate on a two-year fixed-rate mortgage was 1.99 per cent, according to Moneyfacts. Since the start of October 2021 alone, the average rate on a two-year fixed-rate mortgage has surged from 2.25 per cent to 6.48 per cent.

Mark Robinson, of Albion Forest Mortgages, a broker, said that first-time buyer demand has halved since rates began to soar. He said: “Enquiries from first-time buyers have fallen by more than 50 per cent across the board.”

Rita Kohli, of the Mortgage Stop, a broker, said: “Over the last few weeks, we’ve seen a tightening of lending criteria and affordability calculations.

“Consequently, unless you can come up with a larger deposit, buying plans may need to be put on hold.”

If first-time buyers do not have the extra deposit cash, they will have to stomach far higher mortgage bills. A buyer purchasing a £247,000 home with a 10 per cent deposit with mortgage rates at 6.5 per cent will face monthly payments of £1,500.

This is £559 more than when rates were at 2 per cent – a jump of nearly 60 per cent.

But even if the first-time buyer thought that they could afford the extra monthly payments, they may find they are not allowed to take out such a large loan. Lenders’ affordability stress tests mean borrowers have to be able to prove that they can afford even higher payments. This slashes their maximum loan size.