Warning for first-time buyers as sub-4% mortgage rates ‘hanging by a thread' after big inflation spike

The Sun

27-05-2025

EXPERTS are warning first-time buyers to act swiftly, as the cheapest mortgage deals could soon be off the table.
Those looking to step onto the property ladder should consider locking in these rates now, with predictions suggesting they could be gone by the end of the week.
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Home buyers have been in an ideal position lately as mortgage lenders have been slashing rates and offering incentives for first-time buyers.
Leading lenders have been advertising rates below the golden number of 4%.
But the UK's inflation rate soared higher than expected last week, hitting 3.5% - and that's expected to have a knock-on effect on mortgage rates.
According to mortgage brokers, rates have already begun climbing once again, with warnings that more deals could vanish in the near future.
Elliott Culley, director at Switch Mortgage Finance, told The Sun: "There only a few products remaining below 4%, and it looks like the majority of these will be gone by the end of the week."
Meanwhile Justin Moy, managing director at EHF Mortgages, said that "we will likely see mortgage rates creep back over that 4% line in the coming days".
Another broker, HTG Mortgages director Harry Goodliffe, said sub-4% rates are "hanging by a thread".
Why are rates rising again?
It's largely due to the higher-than-expected inflation figures last week.
Inflation rose to its highest level since January 2024, driven by increased energy costs, road taxes and air fares.
The figures have prompted markets to reassess how quickly and aggressively the Bank of England will cut its base rate over the next year.
Mortgage Rates Evergreen
That's because the Bank uses interest rates to control inflation.
Markets had previously been pricing in four base rate cuts over the course of the year, taking the base rate to 3.5% by the end of 2025.
Now the expectation is there could be three or fewer cuts.
The base rate is currently set at 4.25%, and the Bank of England's Monetary Policy Committee will next review its level on June 19.
But the inflation figures may mean the Bank of England is less likely to cut rates again.
This in turn means that swap rates are higher.
Swap rates reflect what markets expect will happen to interest rates in the near future.
They're determined by factors including weather events, inflation, wars, tariffs and supply chain issues.
Mortgage rates are heavily influenced by what is going on in the swap markets, and swap rates have been creeping up again over the past two weeks.
As a result, several major lenders including HSBC, NatWest, Nationwide, Santander and Skipton Building Society have raised rates on some of their products.
What's happening to the cheapest rates?
The majority of mortgage lenders have increased their rates following last week's inflation data.
Brokers say that if there continues to be less confidence in the market then rates could keep increasing.
Rob Peters, principal at Simple Fast Mortgage, said the spike in inflation has "rattled the markets" and has put "real pressure on the sub-4% mortgage deals".
"If this inflation trend continues, we will absolutely see some of those rates disappear, at least in the short-term," he said.
However, he said they "won't vanish overnight" as there's still some room for lenders to compete with each other.
Joseph Lane, founder of Mortgage Lane, agreed the sub-4% rates aren't gone entirely, but they're "becoming increasingly rare".
"The recent rise in inflation has shifted expectations, and while some high street lenders may hold onto sub-4% deals for low-risk residential borrowers, these offers will likely be limited and short-term," he said.
Meanwhile Nick Mendes, mortgage technical manager at John Charcol, said the recent trend of falling mortgage rates seems to be "pausing or even reversing".
He said mortgage rates aren't expected to spike dramatically but the ultra-low deals we've seen recently are "looking increasingly precarious".
What should you do if you're a first-time buyer?
Mendes says that if you're looking to buy then you should explore your options "sooner rather than later".
HTG Mortgages' Harry Goodliffe agrees that buyers should act quickly if they're looking to get on the ladder.
"We've seen some of the best deals quietly vanish overnight, and more could follow," he said.
"If you're sitting on the fence, now might be the time to jump.
"The window for locking in a 3-point-something deal could be closing fast."
It's worth noting that mortgage lenders still have plenty of incentives to help first-time buyers even if you're unable to lock in a rate soon.
For example, April Mortgages and Gable mortgages recently launched a new 100% mortgage that requires zero deposit.
Meanwhile other lenders such as HSBC and Halifax have been slashing their affordability rules to allow people to borrow more.
Craig Calder, secured lending director at TSB, said: "If you are looking to get on the property ladder or purchase your next home, make sure you keep an eye on rates and talk to your bank or mortgage broker to get the best deal for your individual circumstances.
"Remember, some lenders will let you secure a mortgage rate three to six months in advance with no obligation to take it if lower rates are available when you are ready to purchase."
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a mortgage comparison tool to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.