Gap Between Average two and five-year Fixed Rate Mortgages at 7 year low

By: MoneyFacts

Latest analysis by Moneyfacts.co.uk shows that the difference between the average two-year and five-year fixed mortgage rate has narrowed by 0.06% from 0.42% to 0.36% since the beginning of the year, seeing it stand at the lowest difference recorded in seven years as a result. The average two-year fixed rate has fallen by 0.03% from 2.52% in January 2019 to 2.49% this month, while the average five-year fixed rate decreased by 0.09% from 2.94% to 2.85% over the same period.

Meanwhile, the gap between the average five-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.

Darren Cook, Finance Expert at Moneyfacts.co.uk, said:

“It seems that the intense competition within the two-year fixed rate sector is also appearing in the five-year fixed rate market, with the average five-year fixed rate falling by 0.06% more than its two-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 two and five-year fixed rate at a seven-year low, the difference in the monthly repayment between these fixed terms will also be narrow. For example, on a repayment mortgage advance of £200,000 over a 25-year term at the average fixed rate for each respective term would see the average two-year repayment this month stand at £896.23, while the five-year average repayment amount would be £932.89, totalling a difference of £36.66 per month. Using the same mortgage criteria, the difference between the monthly repayments of the average five-year and 10-year mortgage rate (£948.42) this month is just £15.53.

“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.”

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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