Mortgage rates for first-time buyers are at their lowest level since mortgage records began in 1995, according to the Bank of England.

Latest figures show that the interest rates on two and five-year deals have fallen to a 23-year low. Uncertainty over Brexit and fierce competition between lenders in the first-time buyer market is undoubtedly behind the low rates  

As a result, first time buyer levels have seen an upturn in recent months. The latest index report shows that first-time buyers had a larger share of mortgage approvals in October (24.6% of all loans) than in September (24.2%).

Market analysis by UK Finance shows that in Q3 of 2018 first time buyer levels have increased in Scotland and Northern Ireland, and in London first-time buyer levels have hit their highest rate since 2015.

Average rates dropped in October

The average rate in 2017 for a two-year fixed was 4.02% and for a five-year fixed 4.71%. In September this year, these had dropped to 3.39% and 3.95% respectively. However, buyers seeking a 95% loan to value (LTV) mortgage in October could secure a two-year mortgage with an interest rate of 3.33% or a five-year fixed at 3.89%.

Rates could continue falling into 2019

While lower LTV mortgages have limited scope for rate reductions, the more expensive low deposit mortgages enable lenders to cut rates to maintain a competitive edge in the market and attract new borrowers.

Rachel Springall, finance expert at Moneyfacts.co.uk, said,

“The cost of mortgages does appear to be on the rise as a whole, fuelled by the base rate rise in August, but as we have seen in the last month, lenders are still heavily invested in attracting new borrower.”

Shaun Church, from mortgage broker Private Finance, expects rates to fall even further for borrowers with 5% deposits. “I don’t see why we shouldn’t see these drop under 3%, because there is a little bit more meat on the bone with these deals.”

The market for small deposit borrowers is looking particularly fertile, with no signs of abating at present, and will continue to do so as lenders cut rates to encourage first-time buyers to get on the property ladder while they can.