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Fixed-rate mortgages: Are two or five year deals best?

The gap is narrowing between the price of a two-year fixed rate mortgage and a five-year deal, according to analysis published today.
Data gathered by Moneyfacts has shown the difference between the two products is the smallest it has been in nearly five years.
For any borrowers weighing up the pros and cons of these deals, the two-year offerings currently have the edge on price. Mortgages in this sector currently offer an average rate of 2.52%.
But the five-year fix is snapping at its heels. Indeed, the average deal in the five-year market is currently at 2.92% putting it at just 0.40% higher than the typical two-year rate. This represents a reduction of 0.16% in the difference between the two in just one year.
Uncertainty over the Bank of England base rate is, according to Moneyfacts, the main reason for the narrowing gap. It has prompted a sharp rise in two-year rates while the five-year deals have been increasing at a much slower pace.
Meanwhile, lenders are also trying to tempt borrowers into longer-term options ahead of any future base rate rises by keeping their five-year deals competitive, said Moneyfacts.
Security
Charlotte Nelson, finance expert at Moneyfacts, said: “Borrowers seem to be just as 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 why 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.”
Indeed, Nelson said this would represent just £40.87 more per month for opting for the five-year deal instead of the two-year fixed mortgage.
“This is great news for borrowers looking for long-term security, however, with five year fixed rates starting to creep up this may not last forever,” she added.
“Borrowers considering a deal should act fast to ensure they do not miss out on the best possible products.”

Article taken from ‘What Mortgage.co.uk’. Posted on June 25, 2018 by Kate Saines.

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