Rising popularity of two-year fixes continues: Moneyfacts – Mortgage Finance Gazette
Borrowers are continuing to favour two-year fixed rates as prices retreat from recent highs, analysis of mortgage search activity on Moneyfactscompare.co.uk has shown.
The proportion of borrowers looking at two-year fixed rates increased from 48.4% in February to 55.9% in June.
The share of borrowers looking at five-year fixed deals fell from 27.7% to 22.9% over the same time.
The trend is most apparent among remortgage borrowers where demand for two-year fixes has risen from 59.5% to 66.5%, Moneyfacts found.
Among homemovers demand for two-year fixes is up from 40.9% to 52.1%.
But for first-time buyers, the proportion looking at two-year fixes has shrunk slightly, from 66.3% to 65.5%.
Most first-time buyers have to borrow at higher LTVs, where some five-year fixes are cheaper than two-year deals.
At lower loan-to-values, where borrowers hold more equity, two-year fixed rates are now generally cheaper than equivalent five-year deals.
Moneyfacts head of consumer research Adam French says: “Borrowers are still reluctant to lock themselves into longer-term deals and instead are favouring the flexibility of a two-year fix as expectations for lower mortgage rates continue to build.
“However, it isn’t an approach without risk. As recent years have shown time and again, our volatile times can have a rapid effect on borrowing costs.
“The shift is also being supported by pricing.
“Borrowers with more equity will typically find that two-year fixed rates are now slightly cheaper than comparable five-year deals, making shorter fixes attractive for those looking to refinance again if rates continue to improve.”
But he says first-time buyers and borrowers with smaller deposits are facing a different market.
French adds: “At higher loan-to-value ratios, five-year fixed mortgages often continue to offer lower rates than comparable two-year deals, meaning these borrowers must weigh the lower initial cost against the flexibility of a shorter fixed term.
“That may help explain why first-time buyers appear to be diversifying their choices rather than overwhelmingly switching to two-year fixes.”
