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Published: 28/01/2019
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The mortgage rate war is still very much at hand, with providers across the market attempting to attract new business – and not only in the 10-year sector. Indeed, the latest research from can reveal that the rate gap between two-year and five-year fixed rate mortgages has fallen to its lowest level since 2013, indicating heightened competition.

Mortgage rate gap

The rate gap calculates the difference between average two and five-year fixed rates in order to gauge the level of competition in the mortgage market. Given that the average two-year mortgage rate currently stands at 2.50% and the average five-year rate is 2.91%, the rate gap stands at 0.41% today, down from 0.44% on average for the whole of 2018, which in itself marks a fall from 0.57% in 2017 and from 0.64% in 2016.

This means the current rate gap is the lowest seen since 2013, when it stood at an average of 0.27%, and a year prior (2012) it was even smaller at 0.19% – which was the lowest seen since the financial crash of 2008. The table below highlights the trend in more detail:

Rate gap between two-year and five-year fixed mortgages on average

Average rate over 12-month period

Jan-Dec 2013

Jan-Dec 2014

Jan-Dec 2017

Jan-Dec 2018


Two-year fixed






Five-year fixed












Average rates shown are compiled from the period of January to December for each year. Source:

There's no denying that rates have edged up from the record lows seen in 2017, but this was artificially driven by the Funding for Lending Scheme launched in 2012, and its successor the Term Funding Scheme in 2016. The fact that competition remains heightened despite those schemes having ended can only be positive news for borrowers.

"The mortgage rate war may have dulled in comparison to the golden years of cheap funding schemes, but so far this year some of the biggest lenders in the market have taken aim at their pricing to entice new borrowers," said Rachel Springall, finance expert at "Since the start of January, several big brands including Barclays, HSBC, Lloyds Bank, NatWest and Santander have all cut rates across their range of two and five-year fixed deals.

"As it stands, the average two-year fixed mortgage rate of 2.50% is just 0.41% lower than the current average five-year deal of 2.91%, so despite average rates overall rising since the record lows seen in 2017 (in October 2017 the average two and five-year fixed rates were 2.21% and 2.76% respectively), the gap is smaller."

Rachel goes on to explain that, as the two-year fixed market becomes saturated with cheap deals, lenders will no doubt make efforts to compete on five-year deals. There's also great news for first-time buyers, many of whom are able to benefit from lower rates and greater choice, with the average two and five-year fixed rates at 95% loan-to-value (LTV) at new lows of 3.42% and 3.79% respectively. "This will be great news for borrowers who are working hard to get onto the property ladder and want a good mortgage deal to keep costs down," said Rachel.

"While it is difficult to predict what the mortgage market may face in 2019, it is still positive to see the rate gap shrink, particularly for those borrowers eyeing up a five-year fixed deal who want to avoid any potential interest rates rises for some peace of mind."

What next?

Want to take advantage of rising competition? Compare mortgages using our mortgage calculator to find the best deals for you.


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