First time buyers left vulnerable as mortgage rates rise
Low deposit deals have been withdrawn and borrowers prepare for more volatility in the coming weeks.
First time buyers across the UK are facing renewed pressure as mortgage rates climb again, making it increasingly difficult to get onto the property ladder. What had briefly looked like a sense of hope for the housing market in early 2026 has now shifted again with global political uncertainty that has pushed borrowing costs higher.
Lenders have begun to increase rates and have started withdrawing cheaper products, with more withdrawn in a single day than at any time since the mini budget of September 2022.
More than 200 deals have disappeared from the market since the 6th March. The 21st March saw the biggest daily withdrawal since 2022, with 52 deals taken off the market in a single day.
With this, many to-be home owners have been left with less, but more expensive options.
The decreased amount of product options has shrunk the amount of choice for buyers, increasing the remaining property competition. Recent data from The Times showed a significant jump in the number of first time buyers forced into mortgage deals above 5%, rising from 8% to 21% in a matter of weeks. This rapid deterioration and disappointment for affordability has caused struggle, particularly for those already struggling to save a deposit.
The average interest rate for borrowers on a fixed mortgage does not change until it expires, usually after two or five years, and a new one replaces it.
At the beginning of this year, falling mortgage rates and improved availability of deals had encouraged optimism among prospective buyers. However, this has changed. Before the US-Israel war with Iran had started, financial markets had expected UK interest rates to be cut. As a result, this was reducing lenders’ funding costs and rates on new fixed mortgages were decreasing.
Recent increased global tensions, particularly in the Middle East, has upended all of this.
Now, the average rate on a five year fixed mortgage has risen from 4.95% at the start of March to 5.52% today – standing at its highest since July 2024.
More than one-fifth of mortgage rates available at the beginning of March this year have been withdrawn.
David Hollingworth, from broker L&C, previously told the BBC of his hopes for ‘talk of easing conflicts [that should] help the market find a level as it tries to predict what this may mean for the longer term interest rate outlook.’
For those that do proceed with buying, higher borrowing costs mean larger monthly payments and having to stretch household budgeting further, when many are already under financial pressure.
However, while new mortgage costs are rising, the situation is better for those who are approaching retirement and looking to buy an annuity.
Annuities are bought once, converting a pension pot into a guaranteed income for life. With the emergence of drawdown pensions however, they have become less popular, as drawdown pensions allow any amount of money to be withdrawn at any time, while the rest remains invested.
Annuity rates are priced in relation to bond yields which have increased since the start of the war. So perhaps consideration of this would be useful for those approaching retirement.
For now, the path onto the property ladder for first time buyers has steepened once more. With already high living costs and deposit challenges, dealing with mortgage rates and shrinking choices may be the reality for the foreseeable.
Unless economic conditions stabilise, home ownership may remain out of reach for many, reinforcing the growing divide between those who can buy and those who cannot.