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Best UK mortgage deals of the week

Typical British terraced housing in Mumbles, Swansea Bay, Wales, UK.
About 1.6 million existing borrowers have relatively cheap fixed-rate mortgage deals expiring this year. (Oakheart via Getty Images)

Mortgage rates were virtually unchanged this week, but future homeowners are still struggling to find a decent price and more are taking loans well into retirement.

The average rate on a two-year fixed deal this week stood at 5.89%, the same as before, while rates for a five-year deal came in at 5.36%, slightly lower than last week's 5.39%, according to figures from Uswitch.

This follows the Bank of England's (BoE) decision to leave UK interest rates on hold at their 16-year high of 5.25% for a sixth consecutive time.

With fewer BoE interest-rate cuts now expected in 2024, lenders appear to be leaning towards hiking mortgage rates in the near future.

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"While the average rates have, again, remained fairly static for the past week, when looking across the whole market there are signs that some high-street lenders are starting to edge rates upwards. The average 2 and 5-year fixes have seen a rise this week across the big six lenders, with HSBC having already increased some of its fixed-rate deals. We're also beginning to see multiple smaller lenders begin pulling their higher loan-to-value (LTV) deals, suggesting that they will be repriced shortly," Kellie Steed, Uswitch's mortgage expert told Yahoo Finance UK.

"Many economists now believe that the BoE won't make a base rate cut in June and are citing August or September as a more likely timescale. The next base rate decision will be made on 20th June, so lenders will likely be preparing to adjust their rates accordingly.”

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Meanwhile, young homebuyers are being forced to gamble with their retirement prospects by taking on ultra-long mortgages.

In the last three years, researchers have noted a surge in mortgage terms that see homeowners locked into mortgages running beyond the state pension age. This is particularly rife among those under 30, data from the BoE highlighted.

New data shows that UK lenders approved fewer new mortgages than expected last month.

Mortgage approvals dropped slightly in April, down to 61,100 compared to 61,300 in March, while remortgages also fell from 33,500 to 29,000, the latest figures from the BoE showed.

The amount being borrowed by individuals climbed, however, increasing to £2.4bn compared to £0.5bn in March.

The actual interest rate paid on new mortgages stood at 4.74%, up by 1 basis point.

"Niggling inflationary pressures and an impending General Election make an imminent interest rate cut less likely, but the sign of lingering affordability challenges for buyers was evident in the effective rate on newly drawn mortgages, which rose 1-basis point to 4.74% in April," said Alice Haine, personal finance analyst at Bestinvest.

"The rate on the outstanding stock of mortgages also rose with a 7 basis point increase to 3.57%, as more people rolled off cheap fixed rate deals secured before the BoE’s rapid rate-hiking cycle began.

"With rate cut chatter dominating the mindsets of most mortgage borrowers, those looking to buy a first home or refinance an existing product may be in a quandary over what to do next. Anyone unsure should remember they can lock in a deal up to six months ahead of the start of the new mortgage term, with the option to switch to a better rate should it come along in the meantime," she added.

Borrowers have long said goodbye to HSBC’s (HSBA.L) 3.99% for a five-year deal. The cheapest deal at the lender’s table is now 4.48% for five years, an increase from the previous 4.40%.

Looking at the two-year options, the lowest rate comes in at 4.86%, with a £999 fee. This is higher than last week’s 4.79%.

Both cases assume a 60% LTV mortgage, meaning buyers need to have at least 40% for a deposit.

The lender offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix coming in at 6.05% or 5.47% for a five-year fix.

This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

Read more: When will interest rates fall and what should you do?

NatWest (NWG.L) has made some changes to its mortgage rates, but no offer comes close to its previous 3.94% deal.

The best rates prospective borrowers can now get is an online-only deal offering 4.32% for a five-year deal with a £1,495 fee, assuming a 60% LTV. However, after five years the rate almost doubles to 8.24%.

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It offers 4.42% for green mortgages – this product is available for properties with an energy performance certificate (EPC) rating of A or B – and the fee drops to £995.

For a two-year fix, the cheapest a customer can get is 4.82% online, with a product fee of £1,495, unchanged from last week.

Santander (BNC.L) has also moved away from its under 4% mortgage with a five-year fix coming in at 4.38%, assuming you have a 40% deposit.

A 60% LTV two-year fixed rate with a £999 purchase fee comes in at 4.80%. A 75% LTV two-year fixed rate with a £999 purchase fee is priced at 4.88%, unchanged from last week.

Barclays (BARC.L) used to have the cheapest five-year deal for prospective homebuyers with a 40% deposit (60% LTV) that came in at 4.17%, with an £899 fee. No more – the lender has hiked the rate for that deal to 4.34%. Still, it has been at that level for weeks now.

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When it comes to two-year mortgage deals, the lowest you can get is 4.90%, the same as before.

At Nationwide (NBS.L), five-year purchase fixed rates start from 4.59%, with a £999 fee for borrowers with at least a 40% deposit. Unchanged from last week.

Assuming a £300,000 house where you need to borrow £180,000, this puts monthly payments at £1,009.72 per month.

Equivalent two-year rates start from 4.84%, also unchanged.

Halifax, the UK’s biggest mortgage lender, has cut two and five-year fixed rates for residential borrowers by up to 0.19 percentage points.

The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate of 4.78% with a £999 fee for first-time buyers. Unchanged from last week.

The equivalent five-year rate starts at 4.45% (also 60% LTV), also unchanged.

It also offers a 10-year deal with a mortgage rate of 4.93%.

Read more: UK inflation falls to 2.3% in April inching closer to Bank of England target

Nicholas Mendes, head of marketing and mortgage technical manager at John Charcol, said: “It’s important to note that until an official bank rate cut happens, lenders will exhibit mixed attitudes. Those with smaller pipelines may be more proactive in implementing reductions.”

As under 4% mortgage rates are off the market, it makes it harder for prospective homeowners to say they’ve secured a good deal.

The 4.32% deal NatWest offers appears to be one of the cheapest rates available but it requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal. Barclays is close, with a 4.34% deal for a five-year fix.

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Given the average UK house price sits at £261,962, a 40% deposit equates to about £105,000.

Borrowers would need to spread their home loans over more than 70 years to afford the same mortgages on offer just two years ago, banks have said.

There is also a new mortgage product promising to help first-time buyers get on the property ladder with just a £5,000 deposit.

Yorkshire Building Society is offering a deal that enables first-time buyers across England, Scotland and Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

It means first-time buyers could get on the ladder with as little as 1% deposit.

Mortgage rates have risen substantially as the BoE increased interest rates to a 16-year high in a bid to tackle inflation.

Until now, the consensus was that interest rates have peaked and that 2024 will see the Bank start to cut rates as inflation eases.

Inflation slowed down less than expected, however, pushing City investors to cut their forecasts for how much the BoE will cut interest rates this year. Traders are now pricing in just one or two rate cuts, compared to expectations of five cuts at the start of 2024.

If the BoE makes any cuts this year, mortgage rates will come down, but not as much as expected for 2024.

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

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