First-time homebuyers are facing a challenging market as rising interest rates and inflation fuel concerns about the affordability of mortgages. The Bank of England has increased interest rates, leading to an increase in the average rate for new fixed mortgage deals, with some lenders removing deals priced below five percent. This shift has prompted potential buyers to question whether waiting to purchase a home might offer a financial advantage.
Jane Denton of This is Money noted that even a small decrease in mortgage rates can save borrowers hundreds or thousands of pounds annually. For instance, a borrower taking out a £245,700 mortgage on a £273,000 home with a 10 percent deposit could save £154 per month, or £1,848 per year, if rates dropped from 6 percent to 5 percent. Over a five-year fixed term, this could amount to a total saving of £9,240.
However, there is no guarantee that mortgage rates will fall by next year, or by how much. While mortgage rates have been increasing, house price growth in some areas has stagnated or slightly declined. Official figures show the average home cost £273,000 in August, a 0.9 percent increase over the preceding 12 months. This slower price growth could allow first-time buyers' savings to catch up and potentially reduce competition, enabling negotiation on prices.
The market for flats, in particular, has seen prices fall, offering potential savings for buyers in that segment. Earlier this month, the average rate for a new five-year fixed mortgage reached six percent for the first time in three years, according to Moneyfacts. A year ago, the best two-year fixed rate mortgage deal was around 3.8 percent. Currently, the lowest available two-year fixed rate is 5.04 percent, but this requires a substantial 40 percent deposit, which is often unfeasible for first-time buyers.
Mark Harris, chief executive of SPF Private Clients, suggests that the decision to buy now or wait depends on individual circumstances, including finding a suitable property and affordability. He points to the UK government's 'Your First Home' scheme, set to open for applications in February 2027, which offers an equity loan of up to 20 percent for eligible buyers in England, potentially allowing access to lower mortgage rates with a smaller initial deposit. Harris also notes that market expectations suggest a potential base rate rise before a subsequent fall later in 2027, but emphasizes the uncertainty of future mortgage rate movements.
Jonathan Harris, managing director of Forensic Property Finance, advises buying now rather than delaying. He argues that while future interest rate movements are unpredictable, acting now provides certainty. He recommends considering a fixed-rate mortgage to secure predictable monthly payments. For those looking for a balance between security and flexibility, a two-year fix might be preferable, allowing for potential remortgaging in a couple of years when rates may have decreased. He also highlights that the current stagnant property market could be favorable for buyers seeking to purchase at a sensible price, especially for flats where demand is lower.