First-time buyers must now quadruple their deposits to get onto the housing ladder as mortgage rates stick at 6.5pc, new research shows.
Purchasers must now pay for 43pc of their first home in cash if they want to keep their repayments the same as when average mortgage rates were 2pc, according to Hamptons estate agents. This means the average first-time buyer would need to find an extra £81,510 in cash.
When mortgage rates were at 2pc, a first-time buyer purchasing a typical £247,000 home with a 10pc deposit paid £941 per month on a 25-year mortgage.
If the buyer purchased the same house today, with a mortgage rate of 6.5pc, they would need to have a 43pc deposit in order to keep their monthly payments at £941.
Even with rates at 6pc, first-time buyers would need a 41pc deposit – an extra £74,100.
At the start of July 2020, the average rate on a two-year fixed-rate mortgage was 1.99pc, according to Moneyfacts, a data company. Since the start of October 2021 alone, the average rate on a two-year fixed-rate mortgage has surged from 2.25pc to 6.48pc.
Mark Robinson, of Albion Forest Mortgages, a broker, said first-time buyer demand has halved since rates began to soar.
He said: “Enquiries from first-time buyers have fallen by more than 50pc across the board.”
Rita Kohli, of The Mortgage Shop, 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 10pc deposit with mortgage rates at 6.5pc will face monthly payments of £1,500.
This is £559 more than when rates were at 2pc – a jump of nearly 60pc.
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.
The so-called Bank of Mum and Dad is stepping in.
Imran Hussain, of Harmony Financial Services, a mortgage broker, said: “I am seeing more first-time buyers receive assistance from family members, be it parents, aunts, uncles and grandparents helping with gifted deposits.”
