Mortgages with rates fixed for two years have long been cheaper than their five-year equivalents.
But new data out today reveals it’s now less expensive to fix your mortgage for five years as borrowers will currently pay an average of 0.32% more on a two-year fixed deal.
According to a report by Moneyfacts, it’s been 15 years since the average two-year fix, currently at 5.32%, has been priced this far higher.
By comparison, the average five-year fixed rate deal is currently at 5%.
With mortgage rates currently higher than they were at the start of 2022 and the Bank of England looking like it may make one more interest rate hike, remortgagers may well be waiting to see if rates fall in the next year or so. Locking in for a shorter period, therefore, may be more attractive at the moment.
Karen Noye, mortgage expert at Quilter, today advised movers a two-year fix could be the safer bet in these uncertain times. “For those still opting to move house, it may be worth fixing for two years to minimise the amount of time spent fixed on an inflated rate and then make the most of significantly lower predicted rates in 2025,“ she said.
Whilst more borrowers show interest in two-year deals, lenders are clearly focussing on making five-year fixes more attractive.
But, whatever fixed rate mortgage option you choose, the good news is prices are all falling. Moneyfacts said the average two- and five-year fixed rates fell month-on-month for the fourth month running.
They are both at their lowest levels in six months.
Rachel Springall, finance expert at Moneyfacts, said: “Rate competition among lenders has been more focused on longer-term fixed mortgages.
“As the overall two- and five-year fixed average rates drop to their lowest levels in six months, borrowers who put their plans to remortgage on hold towards the tail end of last year may now be looking at the latest offers.”
However she warned standard variable rates (SVR), which are the rates your mortgage reverts to if you don’t remortgage at the end of your deal, were rising significantly.
“The average SVR has now breached 7% for the first time since October 2008,” she said, “which means borrowers will be in for a shock if they are about to revert from a low fixed rate deal.
“Indeed, the margin between the average two-year fixed rate taken out two years ago (2.57%) and the average ‘revert to’ rate (7.12%) stands at 4.55% in March, the largest margin on Moneyfacts records.
“Borrowers must therefore ensure they carefully consider the mortgage options available to them, particularly fixed rates, if they want peace of mind to secure their monthly repayments.”
