UK Mortgages Fixed Interest Rates Gap Falls to the Lowest Since 2013

By: MoneyFacts

The mortgage rate war is still very much at hand, with providers across the market attempting to attract new business – and the latest research from Moneyfacts.co.uk can reveal that the rate gap between two-year and five-year fixed rate mortgages has fallen to its lowest level since 2013.

The rate gap calculates the difference between average two and five-year fixed rates in order to gauge the level of competition in the mortgage market. This calculation shows that the rate gap stands at 0.41% today, down from 0.44% on average for the whole of 2018, which in itself marks a fall from 0.57% in 2017 and from 0.64% in 2016.

This means the current rate gap is the lowest seen since 2013, when it stood at an average of 0.27%, and a year prior (2012) it was even smaller at 0.19% - which was the lowest seen since the financial crash of 2008.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

"The mortgage rate war may have dulled in comparison to the golden years of cheap funding schemes*, but so far this year some of the biggest lenders in the market have taken aim at their pricing to entice new borrowers. Since the start of January, several big brands including Barclays, HSBC, Lloyds Bank, NatWest and Santander have all cut rates across their range of two and five-year fixed deals.

"As it stands, the average two-year fixed mortgage rate of 2.50% is just 0.41% lower than the current average five-year deal of 2.91%, so despite average rates overall rising since the record lows seen in 2017 (in October 2017 the average two and five-year fixed rates were 2.21% and 2.76% respectively), the gap is smaller.

"While economic uncertainties could potentially put off home movers this year, it is still vital that the market keeps moving, or it could cause a standstill. Lenders must consider their levels of risk while also keeping rates low to pull in both buyers and remortgage customers. As the two-year fixed market becomes saturated with cheap deals, lenders will no doubt make efforts to compete on five-year deals.

"First-time buyers are also benefitting from lower rates and greater choice right now, with the average two and five-year fixed rates at 95% loan-to-value (LTV) at new lows, at 3.42% and 3.79% respectively. This will be great news for borrowers who are working hard to get onto the property ladder and want a good mortgage deal to keep costs down.

"While it is difficult to predict what the mortgage market may face in 2019, it is still positive to see the rate gap shrink, particularly for those borrowers eyeing up a five-year fixed deal who want to avoid any potential interest rates rises for some peace of mind."

*Funding for Lending Scheme launched in 2012, Term Funding Scheme launched in 2016.

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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