The typical interest rate on a two-year fixed mortgage has fallen to its lowest point since the infamous mini-budget in 2022.
This is according to the latest data from Moneyfacts which also shows average two-year fixed rates have fallen in the last month by their biggest margin in over six months.
The data comes just days after the Bank of England cut interest rates by 0.25% to 4.25% and as mortgage lenders have begun cutting prices with some of the best deals for borrowers with high equity offering rates below 4%.
Moneyfacts revealed the typical two-year fixed rate mortgage is currently 5.18% having fallen by 0.14% in the past month. This time last year a borrower taking out a two-year fix would be paying 5.91% on average.
Homeowners taking out mortgages on a five-year fixed rate will also be getting significantly lower rates than they were last year. Moneyfacts said the average five-year fix was 5.10% in May compared to 5.18% in April. Back in May 2024 it was 5.48%.
Are two-year or five-year fixed rates cheaper?
When mortgage prices are high, having a two-year fixed rate offers more flexibility as, if prices fall, borrowers can remortgage to a lower rate sooner rather than being locked into a longer-term fix.
For this reason, two-year deals have been more expensive than five-year fixes.
Whilst, at present, it’s still cheaper to take out a five-year fixed rate than the two-year option – this could soon change.
Rachel Springall, finance expert at Moneyfacts, explained: “Falling swap rates have been the driving force behind fixed rate mortgage cuts, and the movement has also fuelled a shortening gap between short- and longer-term fixed rate pricing.
“The inversion in rates could soon come to an end, with the rate gap between the average two- and five-year fixed mortgages now just 0.08%.
“Since the start of October 2022, the average two-year fixed rate has been higher than the five-year rate. However, borrowers who are worried about rate volatility in the months to come may still prefer a five-year fixed rate deal to secure their rate for longer, particularly as the overall average rate is at its lowest point for six months.”
Whilst rates getting cheaper is good news for borrowers, it is still a good idea to get advice to ensure you are choosing the right mortgage for your circumstances.
Springall added: “Borrowers excited by the arrival of cheaper mortgage rates would be wise to seek advice to assess the overall cost of any deal to ensure it’s the right choice for them.”
