Derin Clark

Derin Clark

Online Reporter
Published: 20/08/2019

The average five-year fixed rate mortgage has fallen from 2.84% to 2.79% in the past three weeks, research from Moneyfacts.co.uk reveals.

The research also found that the difference between the average two and five-year fixed mortgage rates has reduced by 0.03% to 0.32% over the same period. These rate drops seem to be lenders responding to a fall in SWAP rates and passing on the reduction to consumers.

What are SWAP rates?

A SWAP rate is what banks and other lenders use to hedge themselves against interest rate fluctuations. Interestingly, on 2 August, the five-year SWAP rate dipped below the two-year SWAP rate, with the latest two-year SWAP rate now at 0.66%, while the five-year SWAP rate is at 0.60%; this means that it is now cheaper for banks to hedge themselves on a five-year fixed rate mortgage than a two-year fixed rate mortgage. It is rare for the five-year SWAP rate to fall below the two-year SWAP rate, and the last time this happened was in 2008, the day before the Bank of England made the first of six consecutive monthly cuts to the Bank rate.

Average two and five-year fixed mortgage rates against SWAP rates

  Two-year fixed average rate Two-year SWAP rate Five-year fixed average rate Five-year SWAP rate Difference between two and five-year average mortgage rates
01-Aug-18 2.53% 1.14% 2.93% 1.41% 0.40%
01-Aug-19 2.49% 0.67% 2.84% 0.67% 0.35%
20-Aug-19 2.47% 0.66% 2.79% 0.60% 0.32%

Darren Cook, finance expert at Moneyfacts.co.uk, said: ““It seems that interest rate competition has stepped up in the five-year fixed rate mortgage market, with the average rate falling from 2.84% to 2.79% since the beginning of August 2019. Furthermore, the differential between the average two-year fixed rate at 2.47% and the average five-year fixed rate at 2.79% has reduced from 0.35% to 0.32% over the same period, perhaps giving the longer-term products a slight edge among borrowers open to either option.

“The cut to five-year fixed mortgage rates will be welcome news to those borrowers who are looking to lock into a slightly longer period and may be unsure which direction interest rates will move next amid the ongoing economic uncertainty. What will be certain for these borrowers is that their monthly mortgage repayment will remain unchanged for the next 60 months.

“The largest cuts to five-year fixed mortgage rates have taken place in the maximum 80% loan-to-value sector, which has fallen by 0.08% to 2.79% since the beginning of the month. This is closely followed by the maximum 70% and 85% loan-to-value sectors, which both fell by 0.06% to 3.00% and 2.81% respectively. Potential first-time buyers may feel a little hard done by, as the average rate at maximum 95% loan-to-value has remained unchanged at 3.63% since the beginning of the month.”

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