First-time buyers and those with smaller deposits are beginning to feel the effects of recent mortgage rate reductions as competition among lenders intensifies. Major players such as Nationwide and Clydesdale are offering competitive rates for borrowers with just a 5% deposit, signalling potential relief for buyers struggling with higher borrowing costs.
- Clydesdale: five-year fixed mortgage at 5.02% with a £999 fee
- Nationwide: five-year fixed rate at 5.04%, following a 0.25% rate cut
- Other lenders:
- TSB: rates cut by up to 0.35%
- NatWest: by 0.19%
- HSBC: by 0.15%
Falling Mortgage rates for Smaller Deposits
While mortgage rates have been gradually decreasing in recent months, most of these reductions have been limited to those with larger deposits. A study by Which? Found that between July and August, the best rates for a five-year fix fell by 0.39% for borrowers with larger deposits, compared to a modest 0.09% drop for those with just a 5% deposit.
For borrowers with significant equity or larger deposits, NatWest currently offers the best rate on the market, a five-year fix at 3.77% for those with a 40% deposit.
More Competitive Deals Expected
According to Nick Mendes from John Charcol, falling funding costs and growing competition among lenders could lead to even more attractive mortgage deals. This would offer much-needed financial relief to existing homeowners while encouraging new buyers and home movers, potentially boosting both the housing market and the broader economy.
Looking ahead, mortgage rates are expected to decline further, with forecasts suggesting a 0.5% drop by 2025, driven by anticipated Bank of England rate cuts and stabilizing economic conditions.
Stamp Duty Window Closing
First-time buyers must act quickly to take advantage of current stamp duty exemptions. The stamp duty threshold, raised to £425,000 during the 2022 mini-Budget, is set to drop to £300,000 in April 2025.
- Buyers who miss the deadline could face additional costs of up to £15,000.
- Average property transactions now take 25 weeks to complete.
According to Izabella Lubowiecka from Zoopla, buyers, especially in southern England, should act by autumn to avoid higher stamp duty.
Further Rate Cuts on the Horizon
While the Bank of England is expected to hold the base rate at 5%, the market predicts two more rate cuts before the end of the year, potentially leading to further mortgage rate reductions.
House prices rose by 1% in August, the first increase since October 2022, signalling renewed confidence in the housing market.