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Gap between the average two and five-year fixed rate mortgage at seven-year low

Gap between the average two and five-year fixed rate mortgage at seven-year low 1

Latest analysis by Moneyfacts.co.uk shows that the difference between the average two-year and five-year fixed mortgage rate has narrowed by 0.06% from 0.42% to 0.36% since the beginning of the year, seeing it stand at the lowest difference recorded in seven years as a result. The average two-year fixed rate has fallen by 0.03% from 2.52% in January 2019 to 2.49% this month, while the average five-year fixed rate decreased by 0.09% from 2.94% to 2.85% over the same period.

Meanwhile, the gap between the average five-year fixed and the 10-year fixed mortgage rates has increased by 0.04%. This is despite the average 10-year fixed mortgage rate falling by 0.05% – from 3.05% in January 2019 to 3.00% in June – the lowest recorded average 10-year fixed rate since February 2018.   

Average two, five and 10-year fixed mortgage rate (Jan/Jun 2019)
  Two-year fixed average rate Five-year fixed average rate 10-year fixed average rate Difference between two and five-year average rates Difference between five and 10-year average rates
Jan-19 2.52% 2.94% 3.05% 0.42% 0.11%
Jun-19 2.49% 2.85% 3.00% 0.36% 0.15%
Difference -0.03% -0.09% -0.05% -0.06% 0.04%
Source: Moneyfacts.co.uk

Darren Cook, Finance Expert at Moneyfacts.co.uk, said:

“It seems that the intense competition within the two-year fixed rate sector is also appearing in the five-year fixed rate market, with the average five-year fixed rate falling by 0.06% more than its two-year counterpart since January this year. As a result, the difference between these two average rates now stands at 0.36%, the lowest since January 2012 when the gap stood at 0.35%.

“With the difference between the average two and five-year fixed rate at a seven-year low, the difference in the monthly repayment between these fixed terms will also be narrow. For example, on a repayment mortgage advance of £200,000 over a 25-year term at the average fixed rate for each respective term would see the average two-year repayment this month stand at £896.23, while the five-year average repayment amount would be £932.89, totalling a difference of £36.66 per month. Using the same mortgage criteria, the difference between the monthly repayments of the average five-year and 10-year mortgage rate (£948.42) this month is just £15.53.

“Currently, mortgage rates appear to be competitive across the board, allowing borrowers the flexibility to choose whether to fix repayments for either the short, medium or longer-term initial rate periods. However, borrowers must also remember to consider other factors, such as potentially greater fee expenses if they opt for a shorter initial fixed payment term and have to switch deals more frequently or the possible implication of mortgage tie-in costs if they wish to shop elsewhere during a longer initial rate period.”

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