Moneyfacts.co.uk data has revealed that the gap between two-year and five-year fixed rate mortgages is at its lowest since 2012, tempting borrowers to consider fixing for longer.
For borrowers looking for longer-term security, the low rates currently available for five-year fixed mortgages are an attractive proposition. Since the beginning of this year, the gap between two-year and five-year fixed rate has fallen 0.6% – resulting in the lowest difference between the different terms in seven years.
Borrowers pay marginally more for stability and savings
The average two-year fixed rate has fallen by 0.03% to 2.49% since January, while the five-year fixed rate has dropped 0.09% to 2.85%. In real terms for borrowers, the difference in monthly repayments is also relatively small, tempting those that would typically settle for a two-year fixed rate to consider paying marginally more per month for longer-term financial stability and potentially a significant saving on interest.
According to Darren Cook, finance expert at Moneyfacts.co.uk, the repayments on a £200,000 mortgage over a 25-year term on the average two-year fixed rate would see the average monthly repayment stand at £896.23. A borrower choosing the five-year fixed rate would be making an average monthly repayment of £932.89 with the difference between the two rates being just £36.66.
How does the average 10-year fixed compare?
While the competition seen between lenders in the two-year fixed rate market is now appearing in the five-year fixed market, is it likely that borrowers could see similar trends in the 10-year fixed market?
Currently, the average ten-year fixed rate is at its lowest level since February last year. On a £200,000 mortgage over a 25-year term on the average ten-year fixed rate the average monthly repayment would stand at £948.42, only £15.53 more than the current average five-year fixed rate repayment.
While the average 10-year fixed rate has fallen by 0.05% since January, the actual gap between the average five-year fixed and the 10-year fixed has increased by 0.04%, indicating perhaps that this is set to widen further.
However, for borrowers that don’t need the flexibility of a shorter-term mortgage, the small increase in monthly repayments between the five and ten year fixed deals will be worth weighing against the long-term financial security of a 10-year fixed rate.
