While interest rates on mortgages have been dropping this summer, first-time buyers with small deposits aren’t seeing the benefits. This is according to consumer group Which?, who found that lenders are offering significantly smaller rate reductions to those with the smallest deposits.

For example, between July 1st and August 8th, the best five-year fixed-rate mortgage deals for buyers with a 40% deposit plummeted by 0.39%. However, those with just a 5% deposit saw a measly drop of only 0.09% during the same period.

This trend is mirrored in the two-year fixed-rate market. Deals for buyers with 40% deposits fell by a considerable 0.46%, while those with a 5% deposit saw a paltry reduction of only 0.17%.

Ele Clark, from Which?, expressed disappointment at this uneven distribution of rate cuts. She stated, “Many of the market-leading deals released by banks in recent days have been exclusively available to buyers with large deposits and homeowners remortgaging with significant equity in their property.”

This news is especially disheartening for first-time buyers who are already grappling with the challenges of getting onto the property ladder. As Clark aptly puts it: “The wait for cheaper mortgage rates will be particularly agonising for first-time buyers with small deposits, who are often the last people to benefit from rate cuts.”

Despite government promises to extend the mortgage guarantee scheme – designed to support those with 5% deposits – and pledges from Labour leader Sir Keir Starmer to make homeownership a reality for more young people, the dream of owning a home remains out of reach for many.

The struggle is evident in the statistics:

• The average first-time buyer won’t pay off their mortgage until they are 63 years and 8 months old (Mojo Mortgages).
• One in five first-time buyers are now over the age of 40 (Santander).

While forecasts suggest a 41% chance of the Bank of England cutting rates for a second consecutive time next month, homeowners shouldn’t expect significant long-term reductions.

Ms. Clark cautioned, “Homeowners and buyers hoping that last week’s Bank Rate cut would lead to a flood of cheaper deals will be disappointed. Rates may come down, but any drops are unlikely to be dramatic in the short term.”

This cautionary note comes as around 700,000 residential fixed-rate mortgage deals are set to expire in 2024 (UK Finance), potentially leaving many homeowners vulnerable to higher repayments.