Five-year fixed rate premium at five-year low
Five-year fixed rate mortgages are starting to look more appealing in the light of rising two-year fixes, according to Moneyfacts.
The financial information provider crunched the numbers and found that the gap between the average two- and five-year fixed rate mortgage is the smallest it has been since August 2013, when it was a tiny 0.25%.
The gap rose to 0.60% two years ago but it’s back down to 0.40% now.
What will you pay?
Current two-year fixed rates are an average 2.52% while you can fix your rate for five years for an average 2.92%.
Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “With all the uncertainty surrounding a potential base rate rise, the average two-year fixed rate has understandably been on an upward trajectory in the first half of this year, increasing from 2.35% at the start of the year to 2.52% this month. Meanwhile, the average five-year fixed rate has been rising at a much slower pace, having increased by just 0.05% since January. This has narrowed the gap between the two products dramatically.
“Borrowers seem to be eager to secure their future, as many are moving away from the traditional two-year fixed rate deals, with remortgage demand for five-year fixed rates increased to 47% – almost half of the remortgage market. It is little wonder borrowers are now considering a five-year fixed rate mortgage, as this deal may only cost them a little more for three years’ extra security.”
Based on the average fixed rates, Moneyfacts said it would cost a typical borrower £40.87 more per month if they were to opt for a five-year deal instead of a two-year option.