The popularity of the two-year fix has increased in May with 55.6% of Moneyfactscompare.co.uk website users comparing these deals. Meanwhile, five- and 10-year fixes were falling out of favour, with 21.8% and 4.5% of users looking at these respectively.
This is despite the fact two-year fixes are typically more expensive than the five-year option. Indeed, Moneyfactscompare.co.uk data shows a typical five year fix is 5.68% compared to the average two-year which is 5.78%.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, said this suggested more borrowers were willing to take a calculated risk that they will have the opportunity to refinance sooner at lower rates instead of securing the lowest available rate today.
“This trend is not being driven purely by pricing,” he explained. “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.
“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.”
He added: “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.”
“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.”