The gap between two- and five-year fixed-term mortgage rates has dropped to the lowest margin in two years.
The average two-year fixed rate is 23 basis points higher than the five-year equivalent but the gap is now at its lowest margin since January 2023, when the spread was 16bps.
The two-year fixed rate has been higher than the five-year equivalent since October 2022.
Average two- and five-year fixed mortgage rates fell by 4bps and 3bps to 5.48% and 5.25%, respectively, from Friday.
At the start of January 2024, the average five-year fixed rate was 5.55%; compared to the start of this month, the rate is now 30bps lower at 5.25%.
However, the average two-year fixed rate has dropped by 45bps over the same period, down to 5.48%.
Product choice rose month-on-month, to 6,508 options, with numbers “substantially higher” than a year ago at 5,899 products.
The average shelf-life of a mortgage product stands at 21 days, unchanged from a month ago.
Moneyfacts finance expert Rachel Springall says: “Borrowers who prefer to lock into a shorter-term mortgage may be pleased to see that the rate gap between the average two- and five-year fixed mortgage has dropped to its lowest margin in two years, January 2023.”
“However, it remains the case that the average five-year mortgage rate is lower than its two-year counterpart, which may be more enticing for those who want peace of mind for longer when it comes to their monthly mortgage repayments.
Springall adds: “There was a mix of rises and falls during 2024 and it will be hard to predict where interest rates might go this year, particularly should stubborn inflation persist.
“However, there were big expectations for fixed mortgage rates to fall, but this could take longer should the markets be unsettled and if swap rates start to rise.
“Lenders may be cautious in their rate setting but they need to make efforts to entice new business and act quickly if there is volatility in future rate expectations. There are millions of borrowers due to come off fixed deals, so remortgage activity will be booming in 2025.”