Price gap between 2 and 5 year fixes at lowest since 2013
The price gap between two and five-year fixed rate deals has shrunk to its lowest level for five years, the latest figures from Moneyfacts show.
With all the uncertainty surrounding a potential base rate rise, the average two-year fixed rate has been on an upward trajectory in the first half of this year, increasing from 2.35 per cent in January to 2.52 per cent this month, the comparison website found.
Meanwhile, the average five-year fixed rate has been rising at a much slower pace, having increased by just 0.05 per cent since January.
This has narrowed the gap between the two products dramatically.
The price difference between the two types of deal has shrunk by 0.16 per cent in just one year, resulting in the smallest gap for almost five years.
Moneyfacts finance expert Charlotte Nelson says: “Borrowers looking for a mortgage now may be unsure of whether to choose a traditional two-year fixed rate deal or opt for the security of a longer-term fix.
“Although the sharp increase in the average two-year fixed rate can be predominately explained by base rate uncertainty, providers also play a part, as they look to shore up their mortgage book ahead of any future rises by the Bank of England.
“Specifically, lenders are hoping to entice borrowers onto a longer-term option by keeping their five-year fixed rate deals competitive, which is why the two-year fixed rates have sped up but the five-year rates haven’t.”
Nelson adds: “Borrowers seem to be just as eager to secure their future, as many are moving away from the traditional two-year fixed rate deals, with remortgage demand for five-year fixed rates increased to 47 per cent – almost half of the remortgage market.
“It is little wonder why borrowers are now considering a five-year fixed rate mortgage, as this deal may only cost them a little more for three years extra security. In fact, based on the average fixed rates, it would only cost a borrower £40.87 more per month if they were to opt for a five-year deal instead of a two-year option.”
Source: Mortgage Strategy