"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."
- Rachel Springall, finance expert at Moneyfacts
The gap between the average two and five-year fixed rate mortgage has fallen to its lowest margin in two years, according to the latest figures from Moneyfacts.
Average mortgage rates on two and five-year fixed rates have fallen by 0.04% and 0.03% to 5.48% and 5.25% respectively this month.
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 0.30% lower at 5.25%. However, the average two-year fixed rate has dropped by 0.45% over the same period, down from 5.93% to 5.48%.
This means the average two-year fixed rate is still 0.23% higher than the five-year equivalent but the gap is now at its lowest margin since January 2023 (0.16%). The two-year fixed rate has now been higher than the five-year equivalent since October 2022.
The data also shows that the average two-year tracker variable mortgage rate rose to 5.47% this month, while the average SVR fell to 7.81%.
Product choice overall rose month-on-month, to 6,508 options, and are now substantially higher than a year ago (5,899).
The average shelf-life of a mortgage product remained steady at 21 days.
Rachel Springall, finance expert at Moneyfacts, said: “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.
"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 on future rate expectations. There are millions of borrowers due to come off fixed deals, so remortgage activity will be booming in 2025.
“Mortgage activity remained calm during December as the average shelf-life remained at 21 days. Despite the calm, fixed rates did see marginal cuts across most loan-to-value brackets and there was a slight rise to product choice. Stability in choice is good news to borrowers who may be concerned about product availability as we enter 2025. Indeed, the turmoil of the 2022 fiscal announcement saw an unprecedented amount of mortgage deals pulled from the market. It is hoped that there will not be a repeat of such upheaval in choice; it is much more likely to expect rates to fluctuate rather than mass product withdrawals. Therefore, it’s wise for borrowers to not delay refinancing their deal, as falling onto a revert rate would be costly. Those coming off the average five-year fixed deal from January 2020 would have been charged 2.74%, but the average Standard Variable Rate (SVR) is now 7.81%, more than 5% higher.”
