First-time buyers are facing a rapidly diminishing pool of low-deposit mortgage options, as lenders adjust their offerings amid shifting economic forecasts.
Analysis from Moneyfactscompare.co.uk reveals that more than 200 deals catering to borrowers with a 5 per cent deposit have vanished from the market since 6 March. This marks the most significant daily reduction in available options since the "mini-budget" period.
The contraction in choice comes as lenders have been steadily increasing rates and pulling products in recent weeks.
This trend is directly linked to a surge in swap rates, which are a key factor in how mortgage providers price their loans.
Geopolitical tensions, specifically the conflict in the Middle East, are cited as a catalyst for changing expectations regarding inflation and the future trajectory of the Bank of England's base rate.
Previous predictions of rate cuts have now been reversed, with some analysts even forecasting potential increases later this year.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, highlighted the grim reality for those with limited savings.
She stated that such borrowers "will feel disheartened to find the average rate on a two-year deal at 95 per cent loan-to-value has risen to 6.10 per cent, with the five-year equivalent not too far off the 6 per cent mark at 5.93 per cent."
She added: “This will be a shock to first-time buyers especially, as many will not be able to build a deposit bigger than 5 per cent due to the cost of living.”
Ms Springall said 204 deals have disappeared at the overall 95 per cent loan-to-value tier since 6 March.
She said: “Saturday saw the biggest daily fall of 52 options since the mini-budget, and 30 more options have gone as of this morning, with nine lost yesterday. On 28 September 2022, 52 options vanished in one day.”
Ms Springall said rising rates will be “harsh” on borrowers, adding: “The hikes to rates will add around £1,200 per year in the cost of borrowing £250,000 over 25 years,” if a typical two-year fixed rate deal was taken out now with a 5 per cent deposit, compared with the start of March when the average two-year fixed-rate 5 per cent deposit rate was 5.45 per cent.
She added: “It is hoped that the mortgage deals which have been pulled will slowly return, but this will rely on a return in stability to the markets and reaffirmed confidence in the path or interest rate setting.”
Moneyfactscompare.co.uk said the availability of homeowner mortgages has shrunk by around a fifth (21 per cent) since 6 March.
Ms Springall added: “It will be essential for borrowers to seek independent advice to keep on top of the mortgage mayhem.”
Across the market generally, some average fixed mortgage rates have now topped the 5.5 per cent mark, while the number of residential products to choose from has dipped below 6,000.
Across all deposit sizes, the average two-year fixed homeowner mortgage rate on the market on Tuesday morning was 5.51 per cent, Moneyfacts said, up from 5.43 per cent on Monday.
The average five-year fixed homeowner mortgage rate on the market on Tuesday morning was 5.52 per cent, up from 5.45 per cent on Monday.
Moneyfacts said there were 5,856 residential mortgage products available. This is down from 6,144 on Monday.
