Gap between the average 2 and 5-year fixed rate mortgage at seven-year low
The average 2-year and 5-year fixed mortgage rate has narrowed by 0.06% from 0.42% to 0.36% since the beginning of the year, bringing it to the lowest difference recorded in seven years.
The average 2-year fixed rate has fallen by 0.03% from 2.52% in January 2019 to 2.49% this month, while the average 5-year fixed rate decreased by 0.09% from 2.94% to 2.85% over the same period.
Darren Cook, finance expert at Moneyfacts.co.uk, said: “It seems that the intense competition within the 2-year fixed rate sector is also appearing in the 5-year fixed rate market, with the average 5-year fixed rate falling by 0.06% more than its 2-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 2 and 5-year fixed rate at a seven-year low, the difference in the monthly repayment between these fixed terms will also be narrow.”
Meanwhile, the gap between the average 5-year fixed and the 10-year fixed mortgage rates has increased by 0.04%.
This is despite the average 10-year fixed mortgage rate falling by 0.05% – from 3.05% in January 2019 to 3.00% in June – the lowest recorded average 10-year fixed rate since February 2018.
Cook added: “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.”
Danny Belton, head of lender relationships, Legal & General Mortgage Club, said: “Ongoing uncertainty and low rates have led to many borrowers locking into a long-term fixed rate mortgage when choosing a new deal.
“Consumers want control over their finances, and as demand for five, seven and even ten year fixes grows – lenders are reacting by lowering rates.
“While these products offer security and certainty of payments, they may not be right for everyone. For those looking for more flexibility and the freedom to move home without facing early repayment charges, a shorter fixed term product could be more suitable.
“That’s why its vital consumers seek out professional advice and speak to an independent mortgage adviser first.
“Our research shows that independent mortgage advisers have access to around six times more products than when going direct to a lender, helping borrowers find the right mortgage for their individual needs.”