An increase in the number of mortgages which allow customers to fix their rates for five years is driving down prices, offering better long-term deals for borrowers.
While two-year options have typically been the cheapest mortgages for borrowers who want to fix their rates, the difference between these and the five-year deals are now narrowing.
People often prefer the flexibility of a two-year fix, but with so much uncertainty five-year options have started to become more popular.
And today, the number of five-year products for borrowers with a 25% deposit to put down on a mortgage or remortgage outstrips the number of two-year deals, according to analysis by Moneyfacts.co.uk.
Darren Cook, finance expert at Moneyfacts, said: “Intense competition among mortgage providers seems to have resulted in the two-year fixed rate market becoming saturated, margins becoming squeezed and mortgage providers looking to entice borrowers to consider a longer five-year fixed rate deal as an alternative.”
Long-term stability
Five years ago, Moneyfacts analysis revealed, the average two-year fixed rate for someone with 40% of their own money to put into their home, was 2.17%. Meanwhile, for the same customer, the average five-year fixed rate was 3.10% – a big leap in price.
However, this difference has now narrowed, with two-year deals offering average rates of 1.81% and five-years typically costing 2.07% today.
Cook added: “Historically, borrowers seemed to have preferred the short-term commitment of a two-year fixed rate deal, but now that product availability has significantly increased in the longer-term five-year mortgage market, borrowers may be looking beyond interest rates and more towards the stability of setting monthly mortgage repayments and hedging themselves against uncertain economic conditions in the longer term.”
Borrowers are advised to make sure they weigh up the entire cost of a mortgage, not just the rate, by looking at product fees and whether a longer-term deal would work for their circumstances.
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