First-time buyers in luck as mortgage rates fall by a tenth amid property slump

First-time buyers are benefitting from the increased competition among banks, which has caused average mortgage rates to fall by a tenth in the last year.

Experts said mortgage companies were struggling to meet their yearly lending targets because of the property market slowdown and had cut rates in an attempt to drum up new business.

Buyers with small deposits have been one of the primary beneficiaries of the lower rates. Mortgage rates for people with a 5pc deposit are now as low as 2.59pc, a deal which is offered by the Newcastle Building Society, subject to £763 in fees.

A fee-free loan is available at HSBC with a rate of 2.69pc. Both deals are fixed for two years.

Despite the Bank of England increasing interest rates twice in the past 18 months, mortgage rates for first-time buyers have typically been getting cheaper. 

Research by Moneyfacts, the financial analyst, found the average five-year fixed-rate mortgage with a small deposit had fallen from 4pc a year ago to 3.6pc today.

In the same time-frame, the average two-year rate has dropped from 3.63pc to 3.27pc.

Chris Sykes of Private Finance, a mortgage broker, said: “Lenders have been dropping rates rather significantly in some cases over the last three months.

"It often gets to this time of the year and lenders have to push to hit end-of-year lending targets.”

Low rates have boosted activity in the first-time buyer market, even as other borrowers have disappeared.

UK Finance, the banking industry trade body, said that there were 35,010 new first-time buyer mortgages completed in August 2019, 0.7pc higher than the previous year.

In the same time period, the number of home mover, remortgage and buy-to-let completions all declined.

Mr Sykes said that banks had lowered rates and relaxed mortgage terms to help lure in the borrowers that remained in the market.

“A lot of people have delayed purchases or moving because of Brexit, meaning this year has been rather flat and some lenders are voicing that they are eager for business,” he added.