Lenders are eager to attract long term business with competitive five year fixed deal only slightly more expensive than shorter term rates.
The mortgage rate gap for five year fixed deal are on average 0.4% higher than a two year deal and the lowest since August 2013 according to a report from Moneyfacts.
Lenders are eager to attract long term business and competition has kept the five year fixed mortgage rates lower while the shorter two year fixed rates have increased in cost since June 2017.
If you are a first time buyer, home mover and remortgage buyer this is good news as it allows you to secure a longer fixed term mortgage protecting you from rising interest rates.
Fixed rate mortgage gap closing
The uncertainty of a potential rise in interest rates from the Bank of England has seen a rise in two year fixed rate mortgages from 2.35% at the start of the year to 2.52%, explains Charlotte Nelson, finance expert at Moneyfacts.
At the same time the five year fixed rate has increased by only 0.05% to 2.92% over this period allowing the gap to reduce considerably.
The following table from Moneyfacts compares the average two and five year fixed mortgage rates with the gap up to June 2018.
| Date | Two year |
Five year |
Gap |
|---|---|---|---|
| Aug-13 | 3.60% | 3.85% | 0.25% |
| Aug-16 | 2.57% | 3.17% | 0.60% |
| Aug-17 | 2.30% | 2.86% | 0.56% |
| Aug-18 | 2.52% | 2.92% | 0.40% |
The number of remortgages for homeowners increased 36% and remortgages for buy-to-let investors up 32% in April 2018 according to UK Fiance.
More remortgage buyers are selecting the longer five year deal increasing to 47% compared to just 36% the previous month.
Charlotte Nelson said, this is great news for lenders, as many are looking to shore up their mortgage book in advance of any base rate rises that may occur.
Based on the average fixed rate deals, the extra cost to a borrower with a mortgage of £200,000 over 25 years on a repayment-only basis is £40.87 per month.
Tracker mortgage rates fall
Other than fixed rate deals first time buyers, home movers and remortgage buyers can consider tracker mortgage rates that move with the Bank of England base rates.
There is the risk that the rate will go up as soon as base rates rise although the cost of an average two year tracker rate is only 1.92% compared to the two year fixed of 2.52%.
Lower tracker rates may sway some, particularly if they have large enough equity in their home that would ensure they’re not as affected by a rate rise if one occurred, says Charlotte Nelson.
Tracker rates were as low as 1.77% in November 2017 increasing with base rates to 2.00% on average and now lenders are looking for new business to attract borrowers.
There is more choice with the number of trackers increasing from 222 at the start of the year to 246 even though this is a smaller market than the fixed rate mortgages.
Older homeowners are taking advantage of low mortgage rates with higher activity from equity release mortgage buyers accessing wealth in their property to help maintain their standard of living or even pay for care at home.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage monthly cost calculators, equity release calculator and property value tracker chart.
For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to improve your quality of life or reduce inheritance tax owed by your beneficiaries.
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