Five-year mortgages offer greater value for borrowers | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 04/06/2019

The gap between two-year and five-year fixed rate mortgages is at its lowest difference in seven years, research by Moneyfacts.co.uk reveals.

Data analysis by Moneyfacts.co.uk shows that since the beginning of the year, the gap between two-year and five-year five rate mortgages has narrowed by 0.6% from 0.42% to 0.36%. The average two-year fixed rate has fallen by 0.03% from 2.52% in January 2019 to 2.49% this month, while the average five-year fixed rate decreased by 0.09% from 2.94% to 2.85% over the same period.

This is good news for mortgage borrowers who are keen to lock their mortgage into a five-year fixed rate, as it means that they will not be having to pay a significantly higher rate for a longer period of security. This trend doesn’t continue for those looking to lock their mortgage into a 10-year fixed rate, despite the average 10-year fixed rate being at its lowest level since February 2018: The gap between the average five-year fixed and the 10-year fixed mortgage rates has increased by 0.04%, while the average 10-year fixed mortgage rate has fallen by 0.05% – from 3.05% in January 2019 to 3.00% in June.

Average two, five and 10-year fixed mortgage rate (Jan/June 2019)

  Two-year fixed average rate Five-year fixed average rate 10-year fixed average rate Difference between two and five-year average rates Difference between five and 10-year average rates
Jan-19 2.52% 2.94% 3.05% 0.42% 0.11%
Jun-19 2.49% 2.85% 3.00% 0.36% 0.15%
Difference -0.03% -0.09% -0.05% -0.06% 0.04%

Darren Cook, finance expert at Moneyfacts.co.uk, said: “It seems that the intense competition within the two-year fixed rate sector is also appearing in the five-year fixed rate market, with the average five-year fixed rate falling by 0.06% more than its two-year counterpart since January this year. As a result, the difference between these two average rates now stands at 0.36%, the lowest since January 2012 when the gap stood at 0.35%.

“With the difference between the average two and five-year fixed rate at a seven-year low, the difference in the monthly repayment between these fixed terms will also be narrow. For example, on a repayment mortgage advance of £200,000 over a 25-year term at the average fixed rate for each respective term would see the average two-year repayment this month stand at £896.23, while the five-year average repayment amount would be £932.89, totalling a difference of £36.66 per month. Using the same mortgage criteria, the difference between the monthly repayments of the average five-year and 10-year mortgage rate (£948.42) this month is just £15.53.

“Currently, mortgage rates appear to be competitive across the board, allowing borrowers the flexibility to choose whether to fix repayments for either the short, medium or longer-term initial rate periods. However, borrowers must also remember to consider other factors, such as potentially greater fee expenses if they opt for a shorter initial fixed payment term and have to switch deals more frequently or the possible implication of mortgage tie-in costs if they wish to shop elsewhere during a longer initial rate period.”

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