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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.
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.
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.
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.
Date | Price gap |
January 2016 | 0.71% |
January 2017 | 0.61% |
January 2018 | 0.52% |
January 2019 | 0.42% |
October 2019 | 0.31% |
Source: Moneyfacts data
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
Term | Lender | Initial rate | Revert rate | APRC | Fees |
Two years | NatWest | 1.19% | 4.24% | 3.7% | £995 |
Five years | Santander | 1.49% | 4% | 3.1% | £999 |
75% LTV
Term | Lender | Initial rate | Revert rate | APRC | Fees |
Two years | NatWest | 1.25% | 4.24% | 3.8% | £995 |
Five years | NatWest | 1.59% | 4.24% | 3.2% | £995 |
90% LTV
Term | Lender | Initial rate | Revert rate | APRC | Fees |
Two years | Barclays | 1.77% | 4.24% | 3.9% | £999 |
Five years | Nottingham | 2.20% | 5.74% | 4.4% | £999 |
95% LTV
Term | Lender | Initial rate | Revert rate | APRC | Fees |
Two years | Newcastle | 2.59% | 4.49%/5.59% | 5.1% | £498 |
Five years | Nottingham | 2.75% | 5.74% | 4.6% | None |
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.
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.
LTV | Average fee on a two-year fix | Average fee on a five-year fix | Difference |
60% | £1,097 | £1,347 | £250 |
75% | £1,047 | £1,247 | £200 |
90% | £1,048 | £997 | -£51 |
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:
Year | ERC |
1 | 5% |
2 | 4% |
3 | 3% |
4 | 2% |
5 | 1% |
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.