We use cookies to allow us and selected partners to improve your experience and our advertising. By continuing to browse you consent to our use of cookies as per our policy which also explains how to change your preferences.

Two-year fixed-rate mortgages getting cheaper

Average rate drops for the first time in 12 months

Homeowners stung by two base rate hikes in just 12 months finally have reason to cheer: the cost of two-year mortgage deals has begun to drop. But how do these deals compare with other offers on the market?

The average cost of two-year mortgages has fallen by 0.04% in the past month, the first decrease since November 2017, according to Moneyfacts.

Which? looks at the trends and compares two and five-year deals.

  • Are you hoping to remortgage to a cheaper deal? A mortgage broker can help you find the best mortgage for you – call Which? Mortgage Advisers on 0800 197 8461.

Cheaper two-year mortgage deals

Since the November 2017 base rate rise, two-year fixed-rate mortgages have been creeping up in cost.

A further increase to the base rate in August 2018 seemed to spell more bad news.

But over the past month, the average rate for two-year mortgages has actually decreased, from 2.53% in September 2018 to 2.49% in October 2018, according to Moneyfacts. This is the first monthly drop in the past year.

The attractive rates may be due to increased competition between providers for remortgaging customers, Moneyfacts suggested.

Nonetheless, the rate remains well above the record low of 2.21% recorded in October 2017.

How two-year deals compare with five-year deals

Short-term mortgages were not the only deals to have become cheaper in the past month: five-year deals also dropped by 0.01%, down to 2.91%.

The average rate has hovered around this level since before the August base rate rise.

But, like two-year deals, five-year mortgages hit their lowest recorded point in October last year, at 2.76%.

Should you fix your mortgage rate?

The falling cost of two-year mortgage deals is a positive sign for homeowners and buyers alike. So, should you consider taking out a fixed-term deal?

If you’re looking to buy a home, a fixed rate allows you to lock in your interest rate for a set period of time, giving you peace of mind that your repayments won’t skyrocket. And the lower your initial rate, the less you’ll pay over the deal period.

Fixed-rate deals can be especially attractive at times when rates generally seem to be going up.

Over the past year, increases to the base rate have put pressure on banks to raise rates for borrowers. While it’s impossible to say what will happen over coming months, there has been some speculation that more hikes could be on the horizon.

Then again, if you’re willing to risk your rate going up – and you’d still be able to meet the repayments if this happened – you could consider a discount or tracker mortgage. This might also be advisable if you’re likely to move during the next few years, as you may face an early-repayment charge if you sell during a fixed-rate period.

Once your initial deal comes to an end, you’ll move onto the lender’s standard variable rate (SVR). This will almost always be higher than what you’d be offered on a fixed-rate or discount deal – and following the base rate rise, more than half of providers put up their standard variable rates by the full 0.25%.

So, if you’re on an SVR, it’s worth finding out whether you can remortgage to a better rate.

Seek professional mortgage advice

When you’re looking for the best mortgage deal, it’s important to shop around.

A professional mortgage broker will help you find a deal and lender that suits your circumstances and navigate the application process.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

Back to top
Back to top