Research by Moneyfacts reveals that the gap between two-year and five-year fixed-rate mortgages is currently as its lowest difference in seven years and offers the best value for borrowers. The data analysists have found out that since the beginning of the year, the gap has narrowed by 0.6% in comparison with 0.42% to 0.36% in the previous years. The average rate of two-year fixed mortgage has fallen by 0.03% from January’s 2.52%, while the average rate of five-year fixed-rate mortgage decreased by 0.09% from 2.94% over the same period.
This is a beneficial period for all mortgage borrowers willing to take the opportunity of locking their mortgage into a five-year fixed rate. The decrease in percentages shows that borrowers now don’t have to pay the significantly higher rate for a longer period of security. Unfortunately, the same cannot be applied for borrowers looking to lock their mortgage into a ten-year fixed rate. However, the average ten-year rate is now at its lowest level too since February 2018, decreasing with 0.05% from 3.05% in January 2019. The gap between the average five-year and ten-year rate of fixed mortgage has, however, increased by 0.04%.
The finance expert at Moneyfacts, Darren Cook, commented: “It seems that the intense competition within the two-year fixed rate sector is also appealing 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 the 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 British pounds 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 British pounds, while the five-year average repayment amount would be 932.89 British pounds, totalling a difference of 36.66 British pounds per month. Using the same mortgage criteria, the difference between the monthly repayment of the average five-year and 10-year mortgage rate (948.42 British pounds) this month is just 15.53 British pounds.
“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.”