Fixed mortgage rates for people with 5% deposit reach ‘lowest on record’

First-time buyers are experiencing some of the lowest mortgage rates on record – despite the recent Bank of England base rate rise, a website has found.

While many first-time buyers may have been worried about the impact of the rising base rate on low-deposit mortgages, Moneyfacts.co.uk said average two and five-year fixed rates for people with only a 5% deposit saved have reached the lowest levels on its records going back to 2007.

But borrowers may need to watch out for any fees that come with these deals – as while rates have fallen, average charges have jumped by over £200 in the past year.

Moneyfacts said the average two-year fix on the market for someone with a 5% deposit now stands at 3.73%, down from 4.16% in September 2017.

For someone with a 5% deposit looking to take out a five-year fixed-rate mortgage, the average rate on offer is 4.08%, compared with 4.5% in September 2017.

Borrowers with 5% deposits may also find they have more choice.

The number of lenders in this sector has jumped by 10 in two years to stand at 58, Moneyfacts said.

But it also said the average fee for borrowers with a 5% deposit taking out a fixed deal has increased from £726 a year ago to £936.

The website said the fact there are more deals now to choose from may have had an impact on average fees.

In August, the Bank of England base rate was increased from 0.5% to 0.75%, pushing up the costs immediately for some borrowers on variable rate mortgage deals.

Charlotte Nelson, a finance expert at Moneyfacts.co.uk, said: “Rates have not just simply fallen but have in fact reached their lowest levels since our records began.

“With 95% LTV [loan-to-value] borrowers often seen as the lifeblood of the market, providers are keen to be seen as the go-to lender for this vital group, not only for the positive message this brings, but also so they can better rejuvenate their mortgage book with new customers.”

She continued: “Not only are first-time buyers experiencing the lowest fixed mortgage rates on record, but they’re also benefiting from a boom in the number of mortgages available, with 345 95% LTV deals this month, 120 more than in September 2016.”

She said providers have been launching multiple options for borrowers to choose from within the same range.

Ms Nelson also said that 5% deposit deals still have significantly higher rates than deals for borrowers with bigger deposits saved – so it could be worth considering trying to scrape together a bigger deposit if possible.

She said, for example, someone with a 10% deposit could potentially be around £100 better off per month than someone with a 5% deposit, based on average two-year fixed rates for a borrower paying off a £200,000 mortgage over a 25-year term.