More borrowers seeking shorter deals in hope of mortgage rate cuts
Mortgage borrowers are increasingly turning to shorter-term fixed-rate mortgages, with the number comparing two-year fixed-rate mortgages rising from 48.4% in February to 55.6% in May.
It follows analysis of mortgage search activity of its website users by Moneyfactscompare.co.uk which also showed that searches for five-year fixed deals fell from 27.7% to 21.8% over the same period and those looking for 10-year fixed-rate mortgages fell from 6.5% to 4.5%.
Although the average five-year fixed mortgage rate (5.68%) is lower than the average two-year fixed rate (5.78%) in May, the analysis shows that more borrowers seem to be taking the calculated risk that interest and mortgage rates will fall sooner rather than later.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: “Demand is increasingly shifting towards two-year fixed-rate mortgages, while the attraction to five and 10-year fixes continues to decline.
“However, this trend is not being driven purely by pricing. On 1 May, the average five-year fixed mortgage rate stood at 5.68%, 10 bps below the average two-year fixed rate of 5.78%. Despite this, borrowers continued to favour shorter fixed-term deals.
A temporary fix
“It appears many borrowers believe the recent spike in mortgage rates will prove temporary and are willing to pay a small premium for a shorter fix in the expectation that they will be able to refinance onto a more competitive deal in the future.
“The continued decline in demand for 10-year fixes backs this up. Unsurprisingly, borrowers are reluctant to commit to today’s rates for the long term, despite the payment certainty these products can offer.
“Unlike homeowners in some other countries who routinely fix their mortgage rates for decades, British borrowers want the security of a fixed monthly repayment but value the flexibility of shorter-term deals. Regardless of the volatility of the last few years, many seem to be positioning themselves for a future where mortgage rates are lower than they are today.”
Mortgage search demand on moneyfactscompare.co.uk
| Mortgage | Feb | March | April | May |
| 2-year fix | 48.4% | 54.8% | 53.6% | 55.6% |
| 5-year fix | 27.7% | 25.1% | 23.2% | 21.8% |
| 10-year fix | 6.5% | 4.6% | 5.3% | 4.5% |