Rates on both two- and five-year fixed mortgages have fallen in January after some lenders made New Year price cuts.
Borrowers are already benefiting from these popular mortgage deals falling in price since last January when the average two-year fixed rate was 5.93%. Now, in 2025, the typical rate for a two-year fix is 5.48%, according to the latest Moneyfacts mortgage report.
For those looking at five-year fixes, the average rate has fallen from 5.55% in January 2024 to 5.25% today, said Moneyfacts.
But even in the first two weeks of 2025, prices have dipped with Moneyfacts reporting the overall two- and five-year fixed rates fell by 0.04% and 0.03% respectively.
Thanks to two Bank of England interest rate cuts in 2024, tracker mortgages – which adjust accordingly – have fallen from 6.15% in January 2024 to 5.47% today. However, they did climb slightly at the start of this year.
Meanwhile, those reverting to their bank’s standard variable rate (SVR) will find typical rates are now 7.81% compared to 8.19% at the end of 2023. Although they have dipped, they still remain significantly higher than mortgage lenders’ deals.
Should you choose a two- or five-year fixed rate?
The common conundrum amongst borrowers over whether to opt for a two or five-year fix now has an additional factor to consider as, according to Moneyfacts, the price gap between the two is narrowing.
Whilst a two-year deal is currently 0.23% higher than the five-year option, the gap between the two is at its lowest margin since January 2023, said Moneyfacts.
Rachel Springall, Finance Expert at Moneyfacts, said this would be welcomed by borrowers who prefer to lock into a shorter-term option.
“However,” she added, “it remains the case that the average five-year mortgage rate is lower than its two-year counterpart, which may be more enticing for those who want peace of mind for longer when it comes to their monthly mortgage repayments.”
Springall added: “There was a mix of rises and falls during 2024 and it will be hard to predict where interest rates might go this year, particularly should stubborn inflation persist.
“However, there were big expectations for fixed mortgage rates to fall, but this could take longer should the markets be unsettled and if swap rates start to rise.
“Lenders may be cautious in their rate setting but they need to make efforts to entice new business and act quickly if there is volatility on future rate expectations. There are millions of borrowers due to come off fixed deals, so remortgage activity will be booming in 2025.”
