First-time buyers are facing a ‘perfect storm’ of high mortgage rates with possible increases to come and unaffordable deposit demands, according to Moneyfacts.

“Higher mortgage rates will put further pressure on first-time buyers. Future increases to the Bank of England Bank Rate will cause even more of a squeeze,” the financial data company warns.

Future rise

The Bank of England kept the Bank Rate at 3.75% yesterday, but a third of its Monetary Policy Committee members voted for an increase, and Governor Andrew Bailey hinted that a future rise may be needed to keep inflation under control.

Low deposit buyers are now being charged more than 6% on their mortgage, Moneyfacts says.

The average new mortgage rate now stands at 5.59%, up from 5.47% at the start of July and 4.90% in March.

Santander and HSBC have increased both fixed rates and tracker rate deals, following Lloyds Bank doing the same last week. Lenders have been passing on higher mortgage costs due to volatile swap rates, amid prolonged tensions in the Middle East, Moneyfacts says.

Purchasing power

Rachel Springall, Finance Expert at Moneyfacts, says: “Interest rates are expected to stay higher for longer and those who delay locking into a fixed rate mortgage could pay the price.

“The cost of living is expected to worsen in the coming months which puts pressure on the Monetary Policy Committee at the Bank of England to consider a rate increase.

“First-time buyers who can save a 10% deposit will not only have more purchasing power, but they will also widen the choice of cheaper mortgage rates.”

She adds: “However, borrowers may not even be able to stretch their savings to a 5% deposit, due to the lack of affordable housing.”

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