First-time buyers “bear the brunt” of mortgage mayhem, Finance Expert explains

As the wider market slowly recovers from recent global shocks.

While the mortgage market showed signs of improvement at the start of this month, first-time buyers continue to “bear the brunt” of recent turmoil, according to Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

“The global pressures caused by the conflict in the Middle East completely flipped the expected path of inflation and future rate setting, which caused lenders to pull deals and hike fixed rates,” Springall explained. However, the latest Moneyfacts UK Mortgage Trends Treasury Report revealed product turnover has since eased considerably – with the average shelf-life of a mortgage doubling from a record-low of eight days in April to 16 days by May.

But, even though it found more than 500 deals have returned to the market over the past month, this represents less than half of those withdrawn between March and April. Overall product choice is still down by around 10% since the beginning of March; in particular, there are approximately 200 fewer deals available at 90% and 95% loan-to-value (LTV) – much to the dismay of first-time buyers with small deposits.

To make matters worse, the average two- and five-year fixed rates charged by 95% LTV mortgage deals remained elevated above 6% at the beginning of May (despite having fallen slightly). By contrast, the typical rate charged by a two- and five-year fixed mortgage (across all LTVs) cooled to 5.78% and 5.68%, respectively.

“Affordability strains are evident”

As well as less choice and higher interest rates, first-time buyers must also contend with a lack of affordable housing and a potential spike in the cost of living.

“It is understandable to see why affordability for borrowers continues to be stretched,” said Springall, adding that “incomes are not stretching far enough to acquire a mortgage and those trapped in the rental cycle struggle to build a sizeable deposit”.

Those determined to get on the property ladder may find they need to borrow larger amounts. Indeed, Springall highlighted data from the Financial Conduct Authority (FCA) which showed the proportion of lending to a single borrower at four times’ income reached its highest level since 2021 in the final quarter of last year.

“As may be obvious, securing a mortgage can be more of a challenge for those going alone, which means any relaxation to loan-to-income rules, such as with building societies like Nationwide with its Helping Hand mortgage at six times’ income, can make all the difference,” said Springall. She added that “support and innovation from lenders will be vital to keep the market moving”.

Meanwhile, borrowers searching for more affordable options could consider taking out a longer-term mortgage (of 35 or 40 years) to lower their initial payments. However, Springall flagged that “this means paying more interest overall, so making overpayments where possible to reduce the debt and mortgage term is wise”. She also encouraged “seeking advice from a broker” to “keep abreast of the latest deals and get invaluable advice on affordability constraints”.

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