The number of three-year fixed rate mortgages has increased by 16% in just two years, according to Moneyfacts.

The financial information provider said that lenders are compteting to attract borrowers opting for a length of deal that is ‘just right’ – offering the perfect mix of security and a great rate.

Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “Increased competition in the mortgage market means that lenders are branching out in order to attract the attention of borrowers. This has resulted in a recent boom in three-year fixed rate mortgages, as well as a marked drop in the average three-year rate to the lowest on record.

“Mortgage customers are faced with a conundrum: many want to benefit from the market’s record low rates but are often wary of locking into a deal for five or more years in case their situation changes. A three-year deal, which sits comfortably in the middle of two and five-year options, could therefore be a good compromise.”

Moneyfacts said that borrowers looking for a fixed rate will find little difference between a two-year fixed rate and a three-year deal. For example, the difference between the average two-year fixed rate at 60% loan-to-value (LTV) and the average three-year fixed rate at the same LTV is just 0.22%.

Nelson added: “Borrowers with higher loan-to-values often prefer the security of a longer-term deal; however, by opting for longer deals and not re-evaluating their situation regularly they could end up paying a premium instead of benefitting from the equity they build up over time. A three-year fixed rate, on the other hand, will allow the borrower to review their situation sooner, thereby making it a more flexible and cost-effective choice.

“Three-year fixed rates often get pushed to the wayside in favour of a two or five-year deal. But borrowers looking at mortgages today should not overlook this option as they could be missing out on some great deals.”