First-time buyers need extra £20,000 deposit to avoid mortgage hikes

A typical first-time buyer could need to raise more than £20,000 more for a deposit to keep their mortgage payments at the same level as before the Iran war started.

Mortgage rates have shot up since the crisis in the Middle East began earlier this spring and put upwards pressure on oil prices and inflation.

Although rates have started to fall a little, they are still far higher than pre-war levels, and analysis by estate agency Savills shows that first-time buyers looking to get on the ladder face a far more difficult task than before.

The estate agency found that someone buying a £259,000 property – roughly average for a first-time buyer – on a 30-year mortgage, would face paying between £47 and £127 extra month, depending on their deposit size and length of fix they took out.

Those with smaller deposits tend to get worse mortgage rates – and these rates have risen more dramatically since the war started at the end of February, the estate agency found.

A first-time buyer taking out a two-year fix with a 10 per cent deposit of £25,900 could have payments of around £1,159 per month on pre-war rates, and would now face £1,286 a month.

To get their payments back to £1,159 per month while buying the same-priced home, they would need to raise an additional £22,973 as a deposit.

Lucian Cook, head of residential research at Savills, said that first-time buyers would face trade-offs because of higher rates.

He said: “There will be a trade-off between finding extra deposit, stomaching higher mortgage costs, shifting to a tracker or delaying plans to move.

“It certainly has the potential to result in people trying to save more and find higher deposits in current circumstances.”

A tracker mortgage is a type of mortgage that tracks the Bank of England base rate. These have stayed the same since the Iran crisis because the base rate has not yet risen, but taking one involves a risk of more dramatic price rises in the future, whereas with a fix, your payments are locked in for a set period of time.

Before the Iran war, the size of deposit that first-time buyers were amassing had actually been falling, according to Savills analysis of regulated mortgage survey data.

Between 2021 and 2026, the average first-time buyer deposit fell by 12 per cent in cash terms, which Cook said reflected “more availability of higher loan-to-value lending”, meaning products for those with small deposits.

Mortgage rates had been dropping earlier this year, but this changed in March.

Before March, experts had expected the Bank of England to cut interest rates this year, but after the start of the conflict, financial markets suggested there could be several hikes.

Expectations of increases sent swap rates – which have a large bearing on mortgage prices – higher, and means many banks have had to increase prices.

Experts said that first-time buyers should negotiate on price to avoid facing high mortgage payments and having to raise bigger deposits.

Nick Mendes, mortgage technical manager at John Charcol, said: “Higher mortgage costs can be a fair negotiating point, but buyers need to use it carefully. Sellers are unlikely to respond well to a generic ‘rates have gone up’ argument, so the stronger approach is to show what the same purchase price now means in monthly payments, affordability and deposit stretch compared with before.

“Showing how a rate rise has added hundreds to monthly repayments or reduced borrowing capacity is far more persuasive than simply saying the market has changed.”

He said although sellers may not accept the argument, especially if they had other interest, it was a “legitimate” way to approach a negotiation.

المصدر: iNews