Mortgage borrowers concerned about the current economic uncertainty and wanting to fix their mortgage into a long-term deal will be pleased to see that five year mortgage rates have seen a sharp drop in the last 12 months.
The latest research from Moneyfacts.co.uk shows that the average five year mortgage rate has fallen by 0.19% in the past 12 months, while the average two year mortgage rate has decreased by just 0.08%. This has narrowed the gap between the average rate being offered on a five year and two year fixed rate mortgage and means that those wanting to lock their mortgage into a five-year term will be able to benefit from highly competitive rates currently available.
In fact, our research also shows that the difference between the average five and two year fixed rate on a maximum 95% loan-to-value (LTV) currently stands at 0.33%, while the lowest difference between rates is currently 0.27% on a maximum 75% LTV.
Rate differential analysis between two and five-year fixed rate mortgage
| |
|
60% LTV |
75% LTV |
80% LTV |
85% LTV |
90% LTV |
95% LTV |
Overall |
| Average two-year fixed rate |
One-year ago |
1.90% |
2.39% |
2.50% |
2.54% |
2.71% |
3.63% |
2.53% |
| Average two-year fixed rate |
Today |
1.80% |
2.32% |
2.39% |
2.47% |
2.66% |
3.27% |
2.45% |
| Average five-year fixed rate |
One-year ago |
2.31% |
2.78% |
2.89% |
2.98% |
3.17% |
4.00% |
2.95% |
| Average five-year fixed rate |
Today |
2.11% |
2.59% |
2.73% |
2.80% |
2.97% |
3.60% |
2.76% |
| Difference between two and five-year average rate |
One-year ago |
0.41% |
0.39% |
0.39% |
0.44% |
0.46% |
0.37% |
0.42% |
| Difference between two and five-year average rate |
Today |
0.31% |
0.27% |
0.34% |
0.33% |
0.31% |
0.33% |
0.31% |
Darren Cook, finance expert at Moneyfacts.co.uk, said: “It seems that competition within the five year fixed rate mortgage sector is pushing the average rate down closer towards the two year fixed average rate. As a result, the difference between these two average rates now stands at 0.31%, which is 0.11% lower than it was a year ago.
“As the difference between the average two and five year fixed rate narrows, on closer inspection, some LTV tiered average rates are narrower than others. In particular, the difference between average rates at 75% LTV is 0.27%, whereas those first-time buyers who may be looking for a longer period of stability on a five year mortgage, can expect to pay a premium of 0.33% over a two year deal.
“With the difference between the average two and five year fixed rate narrowing to 0.31%, so the difference in the monthly repayment between these fixed terms is reducing too. For example, on a repayment mortgage advance of £250,000 over a 25-year term, the average two year fixed rate repayment now stands at £1,115.26, while the average five-year repayment amounts to £1,154.56, a difference of £39.30 per month.
“Currently, mortgage rates appear to be competitive across the board, allowing borrowers the flexibility to choose whether to fix repayments for either the short or medium-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.”
