The gap between average 2-year and 5-year fixed-rate mortgages dropped to its lowest level since January 2023, according to Moneyfacts UK Mortgage Trends Treasury Report data.
Average mortgage rates for 2-year and 5-year fixed products fell by 0.04% and 0.03% to 5.48% and 5.25% respectively.
At the beginning of January 2024, the average 5-year fixed rate was 5.55%, down 0.30% to 5.25% this month.
The average 2-year fixed rate decreased by 0.45%, falling from 5.93% to 5.48%.
The difference between the 2-year and 5-year rates is now 0.23%, the smallest margin since January 2023.
The 2-year fixed rate has been higher than the 5-year equivalent since October 2022.
The average 2-year tracker variable mortgage rate increased to 5.47%, while the average Standard Variable Rate (SVR) decreased to 7.81%, down from a high of 8.19% recorded in November and December 2023.
The total number of mortgage products rose to 6,508 options, significantly up from 5,899 a year earlier, while the average shelf-life of mortgage products remained 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.
Springall added: “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.”
She said: “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.
She added: “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.”
