The Nationwide House Price Index has revealed that over 95% of mortgage borrowers have opted for a fixed-rate mortgage in the past few months, and half of those were five-year fixed deals.
There has been a significant drop in five-year fixed mortgage rates, with the average rate falling 0.19% in the last 12 months. The gap between the average two and five-year fixed rates has narrowed, encouraging borrowers that typically jump from one short-term rate to another to consider fixing for longer.
According to Moneyfacts.co.uk, the difference between the average five and two-year fixed rate on a 95% loan-to-value (LTV) is currently only 0.33%, and the gap is at its narrowest on a maximum 75% LTV at 0.27%.
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.”
Reduced monthly repayments
Moneyfacts highlights that with the gap between the two and five year fixed rates narrowing, the difference in the monthly repayments is reducing, too. On a repayment mortgage of £250,000 over 25 years, the average two-year fixed rate repayment stands at £1,115.26, while the average five-year repayment is £1,154.56. The difference of £39.30 per month for an extra three years of financial security will be attractive to many borrowers.
Borrowers might be facing economic uncertainty, but falling rates on longer-term mortgages are cushioning the blow as they choose to lock in for longer.
