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Get a five-year mortgage for a two-year rate!

Get a five-year mortgage for a two-year rate!

Category: Mortgages

Updated: 14/05/2015
First Published: 14/05/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Are you thinking about remortgaging to a better deal, moving home or getting on the ladder for the first time? If so, it could be time to consider longer-term fixed rates – rates are at record lows across the board, and notably, the average five-year deal will now cost you LESS than a two-year mortgage at this time last year!

Rates continuing to fall

Latest research from Moneyfacts has revealed that average mortgage rates are continuing to fall across the sector, with longer-term rates seeing significant reductions as competition intensifies. The figures show that the average two-year fixed rate fell by 0.02% in the last month, down from 2.97% to yet another record low of 2.95%, and happily for first-time buyers, it's high loan-to-value (LTV) mortgages that are the driving force behind this overall reduction.

Average rates in the longer-term market are following this competitive trend, and to an even greater extent – the average five-year fixed rate mortgage fell by a whopping 0.09% this month, down from 3.53% in April to a new record of 3.44%, meaning it's cheaper than ever to fix your mortgage for longer.

Rates have fallen fast in recent months, and in fact, the average five-year fixed rate is now considerably lower than the average two-year rate at this point last year – the average two-year rate stood at 3.62% in May 2014, and it was only in October when it fell below the current five-year rate – meaning that, in the space of a year, you can now secure a five-year deal for the same price as a two-year alternative!

This isn't the lowest you can get, either. Providers have cut rates significantly in the last few weeks and many products have attracted attention, such as HSBC's launch of the lowest ever five-year fixed rate at 1.99%. It's only available to those with a 40% deposit, but there are still great deals for those lower on the housing ladder – Leek United, for example, has got a five-year mortgage for those with a 10% deposit priced at 3.59%, while Coventry BS has a five-year 85% LTV mortgage at just 3.39%.

Remortgaging activity on the rise

Given the strength of competition in the market at present, it's no wonder that the remortgaging sector is seeing a resurgence. Last month, Moneyfacts released figures revealing that typical borrowers could save thousands of pounds per year by remortgaging to a cheaper rate rather than reverting to their lender's standard variable rate, and it seems that many people are catching on to the idea.

Research from the Nottingham Building Society shows that nearly one in six homeowners surveyed are considering remortgaging over the next six months, and furthermore, five-year fixes are the most popular choice – 27% of potential remortgaging customers would choose a five-year fix ahead of 21% opting for a two-year fix, while 12% would consider fixing for even longer.

Most who wanted to remortgage were seeking savings of £99 per month, but many could save even more – someone with a mortgage of £150,000 who moved from a deal at 4% to one at 2% could be around £3,000 a year (or £250 per month) better off. You'll still need to consider the fees, as many of the cheapest rates come with higher charges, but as Moneyfacts' figures show that average fees have fallen by £20 this month (down from £681 to £661) – while some mortgages come with no product fees whatsoever – you may not have to spend a fortune.

"The mortgage price war is interesting to existing homeowners who are keen to take advantage of the record low rates," said Ian Gibbons of Nottingham Mortgage Services. "With interest rates expected to rise in the coming years, now could well be the right time for many to consider whether there are savings to be had."

So, is it time to consider your options? When you can get five years of repayment certainty for such low rates, it could definitely be worth it. Check out the top fixed rate mortgages to see what's on offer – or the top remortgage deals if you're after a change – and see just how low your rate could be.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.