More choice for borrowers looking to fix mortgage for five years
Borrowers who want to fix their mortgage for five years and who can raise a deposit of at least 25 per cent have more choice than ever, according to new analysis.
The number of five-year fixed mortgage deals at loan to values (LTVs) of 75 per cent and lower now outnumber the number of two-year deals, Moneyfacts found.
In comparison, five years ago the number of two-year fixed rate deals available outnumbered five-year deals.
There are currently 610 five-year fixed rate mortgages on the market available to borrowers with deposits of 25 per cent or greater – 18 more than the 592 two-year fixed rate deals available.
Across all LTV tiers, the difference between the total number of two- and five-year fixed products has narrowed from 351 in January 2015, to 87 in January 2019 and to 36 in January 2020.
As of January this year, there are 1,509 two-year fixed mortgage products on the market and 1,473 five-year fixes.
Margins squeezed due to competition
Darren Cook, spokesperson for Moneyfacts, said: “Intense competition among mortgage providers seems to have resulted in the two-year fixed rate market becoming saturated, margins becoming squeezed and mortgage providers looking to entice borrowers to consider a longer five-year fixed rate deal as an alternative.
“Healthy competition within the five-year fixed mortgage rate market is good news for borrowers, as an increase in the number of available products will generally push rates down and introduce longer-term options that borrowers may have not previously considered.”
Lower premiums making longer deals attractive
Moneyfacts said five years ago, the average two-year fixed rate mortgage at 60 per cent LTV was 2.17 per cent and the average five-year fixed rate at 60 per cent LTV was 3.10 per cent, meaning a borrower would have needed to pay a premium of 0.93 per cent when considering a five-year deal.
This average premium has now reduced to 0.26 per cent, with the average two-year fixed rate at 60 per cent LTV falling to 1.81 per cent and the five-year average falling to 2.07 per cent.
Cook added: “Historically, borrowers seemed to have preferred the short-term commitment of a two-year fixed rate deal, but now that product availability has significantly increased in the longer-term five-year mortgage market, borrowers may be looking beyond interest rates and more towards the stability of setting monthly mortgage repayments and hedging themselves against uncertain economic conditions in the longer term.”