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3 Nov 2019

Should you get a two-year or five-year fixed-rate mortgage?

Borrowers are fixing for longer, but cheaper rates often mask higher costs

Five-year fixed-rate mortgage deals are continuing to drop in cost, but is now the time to take the leap and lock in a good rate?

Longer-term mortgages are getting cheaper as lenders battle for customers and borrowers seek security amid uncertain economic conditions.

Here, we compare the costs of two-year and five-year deals and explain the main things you'll need to consider when searching for a mortgage.

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What's happening to mortgage rates?

Whether you're looking to buy a home or refinance your current loan, the good news is that mortgage rates are very attractive.

Over the course of the year, average costs have dropped on both two-year and five-year fixed-rate deals, with longer-term deals leading the way.

And while the housing market may be experiencing Brexit jitters, there's no sign of mortgage rates being affected.

Research we conducted earlier this month showed that two-year rates have dropped by 0.1% and five-year rates by 0.45% since the 2016 referendum.

The popularity of five-year fixes

Cheap five-year deals have been around for a couple of years now, and there's now more choice than before as lenders scramble to offer the best rates.

The surge in five-year deals has come about for two main reasons.

First of all, banks have been struggling to turn a profit on low-cost two-year deals so have looked elsewhere. Second, homebuyers and remortgagers are looking for greater security during a time of economic uncertainty.

Research by Moneyfacts shows that in the past 12 months, the gap in cost between two-year and five-year fixes has reduced across the board, as shown in the interactive chart below.

Will the price gap continue to close?

It might be hard to imagine a world where five-year fixes are the same price as two-year deals, but that proposition might not be as outlandish as it seems.

That's because we've seen the gap between two-year and five-year deals drop by around 0.1% in each of the last four years - a trend that shows no sign of abating.

DatePrice gap
January 20160.71%
January 20170.61%
January 20180.52%
January 20190.42%
October 20190.31%

Source: Moneyfacts data

Best rates on two-year and five-year fixes

Average rates are useful to get a feel for the market, but you're bound to be wondering where you can find the cheapest possible deal.

Below, we've listed the best introductory rates currently available on two-year and five-year fixes at four popular loan-to-value (LTV) levels, according to Moneyfacts data.

60% LTV

TermLenderInitial rateRevert rateAPRCFees
Two yearsNatWest1.19%4.24%3.7%£995
Five yearsSantander1.49%4%3.1%£999

75% LTV

TermLenderInitial rateRevert rateAPRCFees
Two yearsNatWest1.25%4.24%3.8%£995
Five yearsNatWest1.59%4.24%3.2%£995

90% LTV

TermLenderInitial rateRevert rateAPRCFees
Two yearsBarclays1.77%4.24%3.9%£999
Five yearsNottingham2.20%5.74%4.4%£999

95% LTV

TermLenderInitial rateRevert rateAPRCFees
Two yearsNewcastle2.59%4.49%/5.59%5.1%£498
Five yearsNottingham2.75%5.74%4.6%None
  • Find out more:discover how the big banks rank for customer service in our guide on the best mortgage lenders.

Does this mean I should get a five-year fix?

There's no doubt that now is a good time to fix your mortgage for longer.

That said, a five-year fix isn't right for everyone, and there are some additional charges you'll need to consider before rushing in.

Upfront fees

First of all, five-year fixes can come with higher upfront fees.

When we looked at the fees on the top 10 two-year and five-year deals earlier this month, we found that average charges on longer fixes were much higher at both 60% and 75% loan-to-value.

LTVAverage fee on a two-year fixAverage fee on a five-year fixDifference

Early repayment charges

Five-year fixes usually come with early repayment charges (ERCs), which can present you with a hefty bill should you decide to move home.

ERCs are usually charged as a percentage of your outstanding mortgage debt, with the penalty reducing each year you live in the home.

Charges vary between lenders, but they tend to look like this across a five-year term:


If you had a £200,000 loan outstanding at the end of your first year on a five-year mortgage, with the ERCs outlined above you would face a bill of £10,000 to get out of the deal early.

With this in mind, it's important to think about your long-term plans before signing up to a longer-term deal.

If you're unsure if you'll stay put for the full five years, take out a shorter-term fix or seek a mortgage that you can port to another home without penalties.

How to find the best mortgage deal: five tips

  1. Work out how much you can borrow and at what LTV: if you've got a small deposit, saving a little more can make a big difference to your mortgage rate, as 90% mortgages remain considerably cheaper than 95% deals. It's important to seek out the best rate without overstretching your finances. You can find out how much a bank might loan you by using our borrowing calculator.
  2. Get to grips with how fees work: consider upfront fees as well as initial rates when comparing mortgages. It's possible to add these charges to your loan, but then you'll need to pay extra interest. And as we discussed earlier, ERCs can be very expensive on the cheapest longer-term fixes.
  3. Consider your future plans:how long you should fix for depends on your appetite for risk and your future plans. Consider how long you'll look to live in the property before fixing for longer.
  4. Read our mortgage lender reviews:customer service can be as important as cost, especially if something goes wrong. With this in mind, check out our mortgage lender reviews before choosing a deal.
  5. Take expert advice:there are thousands of mortgage deals on the market, so it can help to take advice from a mortgage broker, who can assess your individual circumstances and find you the right deal.