The popularity of short-term fixes continues to grow: Moneyfacts – Mortgage Strategy
The proportion of borrowers opting for short-term fixes rose again in May, new figures from Moneyfactscompare.co.uk show.
The share of website users looking for two-year fixed-rate deals rose from 48.4% in February to 55.6% in May, while demand for five-year fixed-rate deals fell from 27.7% to 21.8% over the same period.
The change comes despite the fact that the average five-year fixed rate remains cheaper than the two-year rate at 5.78% compared to 5.68%, Moneyfacts data reveals.
More borrowers appear willing to take the calculated risk that rates will be lower in two years’ time when they need to refinance, rather than being locked into slightly lower rates now, but unable to change for five years.
Moneyfacts head of consumer finance Adam French says: “Recent search data from Moneyfactscompare.co.uk shows that demand is increasingly shifting to two-year mortgages, while attraction to five- and 10-year fixes continues to decline.
“However, this trend is not only driven by prices.
“As of May 1, the five-year mortgage rate stands at 5.68%, 10 bps below the two-year benchmark of 5.78%.
“Despite this, borrowers continued to prefer shorter fixed term agreements.
“It appears that many borrowers believe that the rise in mortgage rates will be temporary and are willing to pay a small amount for a short-term fix in the expectation that they will be able to re-pay at a more competitive deal in the future.
“The continued decline in demand for 10-year repairs supports this.
“Surprisingly, borrowers are reluctant to commit to today’s long-term rates, despite the payment certainty these products offer.
“Unlike foreign home owners who tend to fix their mortgage rates over decades, British borrowers want the security of monthly payments but appreciate the flexibility of short-term deals.
“Despite the volatility of the past few years, many seem to be setting themselves up for a future where mortgage rates are lower than today.”
National Association of Estate Agents (NAEA) Propertymark president Mary-Lou Press adds: “What’s interesting is that we’re seeing buyers place more emphasis on flexibility than finding the lowest price available.
“Many borrowers know that their circumstances may change in the next few years, whether that’s moving home, increasing or revising their borrowing position, and short-term adjustments can provide more options when those decisions arise.
“That being said, borrowers should avoid making decisions based solely on rate forecasts.
“Affordability, future plans, and potential early repayment costs are key factors, making professional advice more important than ever in today’s market.
“This trend also shows the real estate market where confidence is growing.
“Consumers seem more comfortable making long-term property decisions without feeling the need to be locked into a mortgage product for five or ten years.”
