UK Fixed Rate Mortgage Gap Hits Five-year Low

By: MoneyFacts

As two-year fixed mortgage rates continue to rise, five-year fixed rate mortgages are starting to look more appealing. In fact, the latest research from Moneyfacts.co.uk shows that the gap between the average two and five-year fixed rate mortgage is the smallest it has been since August 2013.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said:

“Borrowers looking for a mortgage now may be unsure of whether to choose a traditional two-year fixed rate deal or opt for the security of a longer-term fix. Well, the latest research from Moneyfacts.co.uk shows that the difference between the two types of deal has shrunk by 0.16% in just one year, resulting in the lowest difference seen in almost five years.

“With all the uncertainty surrounding a potential base rate rise, the average two-year fixed rate has understandably been on an upward trajectory in the first half of this year, increasing from 2.35% at the start of the year to 2.52% this month. Meanwhile, the average five-year fixed rate has been rising at a much slower pace, having increased by just 0.05% since January. This has narrowed the gap between the two products dramatically.

“Although the sharp increase in the average two-year fixed rate can be predominately explained by base rate uncertainty, providers also play a part, as they look to shore up their mortgage book ahead of any future rises by the Bank of England. Specifically, lenders are hoping to entice borrowers onto a longer-term option by keeping their five-year fixed rate deals competitive, which is why the two-year fixed rates have sped up but the five-year rates haven’t.

“Borrowers seem to be just as eager to secure their future, as many are moving away from the traditional two-year fixed rate deals, with remortgage demand for five-year fixed rates increased to 47%* – almost half of the remortgage market. It is little wonder why borrowers are now considering a five-year fixed rate mortgage, as this deal may only cost them a little more for three years extra security. In fact, based on the average fixed rates, it would only cost a borrower £40.87** more per month if they were to opt for a five-year deal instead of a two-year option.

“This is great news for borrowers looking for long-term security, however, with five-year fixed rates starting to creep up this may not last forever. Borrowers considering a deal should act fast to ensure they do not miss out on the best possible products.”

* Source: LMS report, 6 June 2018

** Based on a £200,000 borrowing amount over 25 years on a repayment only basis.

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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