Mortgages

Two and five-year fixed rate gap narrows to 0.41%

The average two-year fixed mortgage rate of 2.50% is just 0.41% lower than the current average five-year deal of 2.91%.

Rozi Jones
|
28th January 2019
bridging lending gap
" As the two-year fixed market becomes saturated with cheap deals, lenders will no doubt make efforts to compete on five-year deals."

The gap between two-year and five-year fixed rate mortgages has fallen to its lowest level since 2013, according to data from Moneyfacts.

The average rate gap stands at 0.41% today, down from 0.44% on average for the whole of 2018, 0.57% in 2017 and 0.64% in 2016.

This means the current rate gap is the lowest seen since 2013, when it stood at an average of 0.27%.

Rachel Springall, finance expert at Moneyfacts, said: "Since the start of January, several big brands including Barclays, HSBC, Lloyds Bank, NatWest and Santander have all cut rates across their range of two and five-year fixed deals.

"As it stands, the average two-year fixed mortgage rate of 2.50% is just 0.41% lower than the current average five-year deal of 2.91%, so despite average rates overall rising since the record lows seen in 2017 (in October 2017 the average two and five-year fixed rates were 2.21% and 2.76% respectively), the gap is smaller.

"While economic uncertainties could potentially put off home movers this year, it is still vital that the market keeps moving, or it could cause a standstill. Lenders must consider their levels of risk while also keeping rates low to pull in both buyers and remortgage customers. As the two-year fixed market becomes saturated with cheap deals, lenders will no doubt make efforts to compete on five-year deals.

"First-time buyers are also benefitting from lower rates and greater choice right now, with the average two and five-year fixed rates at 95% LTV at new lows, at 3.42% and 3.79% respectively. This will be great news for borrowers who are working hard to get onto the property ladder and want a good mortgage deal to keep costs down.

"While it is difficult to predict what the mortgage market may face in 2019, it is still positive to see the rate gap shrink, particularly for those borrowers eyeing up a five-year fixed deal who want to avoid any potential interest rates rises for some peace of mind."

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