Borrowers increasingly opt for 2-year fixed rate mortgages, study finds
Moneyfactscompare.co.uk found the share of users searching for 2-year fixed mortgages increased from 48.4% in February to 55.9% in June.
Borrowers are increasingly opting for 2-year fixed-rate mortgages as rates ease, according to analysis from Moneyfactscompare.co.uk.
The comparison site’s data found the share of users searching for 2-year fixed mortgages increased from 48.4% in February to 55.9% in June, while demand for 5-year fixed deals fell from 27.7% to 22.9% over the same period.
The shift was most pronounced among remortgage borrowers, with searches for 2-year fixes rising from 59.5% to 66.5%.
Among homemovers, demand increased from 40.9% to 52.1%.
Moneyfactscompare.co.uk said borrowers with lower loan-to-value (LTV) mortgages can now generally access lower rates on 2-year fixes than equivalent 5-year products.
However, borrowers with smaller deposits typically continue to find 5-year fixed deals offer lower rates.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: “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.”
French added: “However, first-time buyers and borrowers with smaller deposits are facing a different market.
“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.”
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