Data from Paragon Banking Group revealed 49% of customers are now choosing an initial fixed rate period of five years compared to only 25% back in 2013.
Meanwhile, mortgages with rates fixed for two years have experienced a plunge in popularity with 37% of customers choosing the shorter term fixes compared to more than half in 2013.
Mortgage brokers think the fact the Bank of England base rate is currently low, coupled with fears over future rate rises, is main driver behind the soaring popularity of five-year deals, which allow customers to lock into a specified rate for a longer term.
What’s more, having certainty over payments for a longer period also played a key role in many customers’ decision, Paragon said.
Potential pitfalls of five-year deals
While they provide a certain amount of security, five year fixes aren’t necessarily for everyone. Indeed, several of those questioned in the survey of 200 mortgage intermediaries raised concerns.
They stressed that products with a longer term initial fixed period might only suitable for customers who expected to stay in their current home for an extended period. This was because anyone considering a house move might have to pay early redemption penalties which could outweigh the benefits of a longer term deal.
John Heron, managing director at Paragon, said: “The five-year fix has found a real sweet spot in the market.
“Low interest rates, economic uncertainty around Brexit, a drop in home-mover transactions and more remortgaging means that five year products have become a viable option for a much larger proportion of customers.”
Outlook
Going forward, the brokers questioned as part of the Financial Adviser Confidence Tracking Index, did not see any reason for five-year fixed rates to fall out of favour.
However, many said a stable economic climate post Brexit, which could lead to an interest rate rise, was the most likely cause of any reduction in the attractiveness of the five-year fix.
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