The proportion of borrowers opting for short-term fixes rose again in May, new figures from Moneyfactscompare.co.uk show.
The share of website users searching for two-year fixed-rate deals rose from 48.4% in February to 55.6% in May, while demand for five-year fixed-rate deals fell from 27.7% to 21.8% over the same period.
The shift comes despite the fact that the average five-year fixed rate is still cheaper than the average two-year interest rate at 5.78% compared to 5.68%, Moneyfacts data reveals.
More borrowers appear willing to take the calculated risk that interest rates will fall in two years when they need to refinance, rather than holding out for slightly lower interest rates now, but unable to switch for five years.
Adam French, Head of Consumer Finance at Moneyfacts, says: “The latest research data from Moneyfactscompare.co.uk reveals that demand is increasingly shifting towards two-year fixed rate mortgages, while attraction to five- and 10-year fixes continues to decline.
“However, this trend is not only based on pricing.
“On May 1, the average five-year fixed mortgage rate was 5.68%, 10 basis points lower than the average two-year fixed rate of 5.78%.
“Despite this, borrowers continued to prefer shorter fixed-term deals.
“Many borrowers seem to believe that the recent rise in mortgage rates will be temporary, and are willing to pay a small premium for a shorter fix in the hope that they can refinance to a more competitive deal in the future.
“The ongoing 10-year decline in demand for repairs supports this.
“It is not surprising that borrowers are reluctant to commit to today’s rates over the long term, despite the payment security these products can provide.
“Unlike homeowners in some other countries who routinely lock in interest rates on their mortgages for decades, British borrowers want the security of fixed monthly repayments but value the flexibility of short-term deals.
“Regardless of the volatility of the past few years, many appear to be positioning themselves for a future in which mortgage rates are lower than they are today.”
“What’s particularly interesting is that we’re seeing buyers focus more on flexibility rather than just securing the lowest price available,” adds National Association of Real Estate Agents (NAEA) President Mary Lou Press.
“Many borrowers realize that their circumstances may change over the next few years, whether it’s moving house, upsizing or reconsidering their borrowing situation, and short-term fixes can provide more options when those decisions arise.
“However, borrowers should avoid making decisions based solely on price expectations.
“Affordability, future plans and potential early repayment fees remain key considerations, making professional advice more important than ever in today’s market.
“This trend also reflects the housing market where confidence is improving.
“Buyers are more comfortable making long-term property decisions without feeling the need to lock in a five- or 10-year mortgage product.”
