Mortgage rates leaped in the last month with the price gap between a two-year fixed rate and the five-year equivalent widening.
Borrowers considering borrowing with a mortgage rate fixed for two years will find the average rate has creeped up by 0.11% since last month to stand at 5.91%.
For those fixing for five years the rates are cheaper, with the average deal at 5.48% – a 0.9% leap since April, the new data from Moneyfactscompare.co.uk revealed.
This means borrowers taking out a two-year mortgage will most likely have higher repayments than they would if they opted for a five-year deal.
But despite the fact fixing into a new rate is more expensive, borrowers who are coming to the end of an existing deal are being cautioned against ‘doing nothing’.
For those tempted to wait to see if interest rates fall later this year, the interest rate you will revert to if you don’t switch to a new deal is nearly at a record high.
Moneyfactscompare said the average standard variable rate (SVR) is current 8.18% which is just shy of the highest ever recorded – 8.19%.
Rachel Springall, finance expert at Moneyfacts said: “Borrowers coming off a fixed rate mortgage this year will need to cover higher monthly mortgage repayments.
“Indeed, in May 2022, the average two-year fixed mortgage rate was 3.03%, and in May 2019 the average five-year fixed mortgage rate was 2.85%. It will still be cheaper for borrowers to grab a fixed mortgage now compared to sitting on a revert rate, based on average rates, and some borrowers may even consider a base rate tracker mortgage over the next two years if they are in line with economists’ predictions for the Bank of England to cut base rate this year.
“Consumers preparing to refinance or ready to buy their first home would be wise to seek advice to navigate the latest deals available.”
Are tracker mortgages a better option?
The average tracker mortgage is currently 6.12%, according to Moneyfacts. This rate has fallen from 6.14% in April.
Some borrowers prefer tracker mortgages because, whilst they are controlled largely by the ups and downs of the Bank of England’s base rate, many come without early repayment charges and therefore offer more flexibility.
Moneyfacts report did offer some good news to borrowers, which is product choice increased to 6,565 which the highest since February 2008.
What’s more, the length of time mortgage deals remain available has stabilised. Springall said: “Despite lenders pulling selected fixed deals, some of which were priced below 5%, there was not a mass exit of products. It was evident that repricing during April was the clear focus among lenders, and in fact, mortgage product availability rose.”
