Higher mortgage rates are placing increasing pressure on first-time buyers (FTBs), with those purchasing a home using a 5% deposit now facing average five-year fixed mortgage rates above 6%, Moneyfacts has warned.

The financial data provider identified several factors that will put further pressure on FTBs. The average five-year fixed rate at 95% loan-to-value (LTV) has risen to 6.07%, compared with 5.75% for borrowers with a 10% deposit.

Based on a £250,000 mortgage over 25 years, buyers with a 5% deposit will pay almost £600 more a year in repayments than those able to put down 10%, its analysis has revealed.

Moneyfacts said borrowers delaying a move to a fixed-rate mortgage risk paying significantly more if the Bank of England (BoE) raises interest rates further. A 0.25% increase in the base rate would add around £450 a year to repayments on a typical £250,000 mortgage, while a 0.5% rise would increase annual repayments by around £900.

The average standard variable rate (SVR) currently stands at 7.13%, so borrowers reverting to an SVR could save around £2,700 a year by switching to the average five-year fixed deal, according to the analysis.

The overall Moneyfacts average new mortgage rate has increased to 5.59%, up from 5.47% at the start of July and 4.90% in early March, on the back of higher funding costs driven by volatile swap rates. Several major lenders, including Santander, HSBC and Lloyds Bank, have also increased fixed and tracker mortgage rates in recent weeks.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: "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.

"Locking into a longer-term fixed deal for more peace of mind could shield borrowers from future rate rises. First-time buyers who can save a 10% will not only have more purchasing power, but they will also widen the choice of cheaper mortgage rates."

---