Landlords need to look closely

Deciding between a two or a five-year fixed mortgage has just got a little trickier as new analysis reveals the cost of repayments between the two deals has narrowed.

Borrowers often find mortgages with rates fixed for five years more attractive when they are looking for long-term certainty over their repayments, something which can prove beneficial if the Bank of England base rate goes up. Meanwhile two-year deals, which offer a shorter-term option and more flexibility, tend to come with cheaper rates. But new data published by financial data providers, Moneyfacts.co.uk, revealed the gap in average rates between these two types of deal has narrowed, with the difference in price at a seven–year low. This means longer-term options have begun to look more attractive when it comes to value.

Currently the average two-year deal comes with a rate of 2.85% while its five-year counterpart comes in at 3%. This is a difference of 0.15% which is much lower than the 0.42% gap between the two deals recorded last year and has had a direct impact on repayments.

To really mix things up, Moneyfacts also looked at mortgages which fixed customers’ rates for ten years. They found, using the same criteria, a customer could end up paying just £15 a month more by fixing for a decade.

Borrowers should consider the importance of looking at other factors when choosing a mortgage, not just rates.

There is, for example, potential for greater fee expenses if borrowers opt for a shorter initial fixed payment term. What’s more, this will require borrowers to switch deals more frequently. Borrowers should also consider early repayment charges if they are looking at locking into a longer-term deal.

If you are looking for a new or re-mortgage, please do make contact and one of our fully qualified independent advisers will be happy to help.