The popularity of the two-year fix increased in May with 55.6% of Moneyfactscompare.co.uk users comparing these deals. Meanwhile, five- and ten-year fixes are no longer unfavorable, viewed by 21.8% and 4.5% of users respectively.
This is despite the fact that two-year repairs are usually more expensive than the five-year option. In fact, Moneyfactscompare.co.uk data shows that the typical five-year fix is 5.68% compared to the two-year average of 5.78%.
Adam French, Head of Consumer Finance at Moneyfactscompare.co.ukHe said this indicated that more borrowers were willing to take a calculated risk as they would have the opportunity to refinance sooner at lower rates rather than locking in the lowest rate available today.
“This trend is not driven solely by pricing,” he explained. “As of 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 continuing decline in demand for 10-year fixes supports this. Unsurprisingly, borrowers are reluctant to commit to today’s rates over the long term, despite the payment security these products can provide.”
He added: “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.”
“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 of them appear to be setting themselves up for a future where mortgage rates are lower than they are today.”
