Search data shows growing preference for two-year fixes as borrowers bet on future rate cuts
The proportion of borrowers comparing two-year fixed-rate mortgages has risen sharply, according to new analysis of search activity on price comparison site Moneyfactscompare.co.uk.
The share of users on the website looking at two-year fixed deals climbed from 48.4% in February to 55.6% in May. Over the same period, interest in five-year fixes dropped from 27.7% to 21.8%, while searches for 10-year products fell from 6.5% to 4.5%.
| 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% |
| Source: Moneyfactscompare.co.uk | ||||
The shift towards shorter-term products came despite the average five-year fixed rate of 5.68% sitting below the average two-year fixed rate of 5.78% in May — suggesting that rate differentials alone are not driving borrower behaviour.
"The latest search data from Moneyfactscompare.co.uk reveals that demand is increasingly shifting towards two-year fixed-rate mortgages, while the attraction to five and 10-year fixes continues to decline," said Adam French (pictured right), head of consumer finance at Moneyfactscompare.co.uk.
"However, this trend is not being driven purely by pricing. On 1 May, the average five-year fixed mortgage rate stood at 5.68%, 10bps below the average two-year fixed rate of 5.78%. Despite this, borrowers continued to favour shorter fixed-term deals.
| Moneyfacts Average Mortgage Rate by term (all LTVs) | ||||
| Mortgage | 1 Feb | 1 March | 1 April | 1 May |
|---|---|---|---|---|
| 2-year fix | 4.85% | 4.84% | 5.84% | 5.78% |
| 5-year fix | 4.94% | 4.96% | 5.75% | 5.68% |
| 10-year fix | 5.60% | 5.61% | 6.01% | 6.15% |
| Source: Moneyfactscompare.co.uk | ||||
French noted that many borrowers appear to be betting that the recent rise in mortgage rates is temporary, accepting a slightly higher rate on a shorter fix in anticipation of refinancing onto a more competitive deal down the line.
"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.
"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."
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