Five-year fixed mortgages can now be found cheaper than two-year fixed ones

Five- and 10-year fixed mortgages are being offered at cheaper rates than two-year fixed rates from a major lender as people seek to lock in monthly payments for as long as possible due to the housing cost crisis. life.

Halifax today launched a two-year fixed rate of 2.54% with a fee of £995, for those with deposits of 40% or more.

But comparable five- and ten-year fixed rates are cheaper at 2.48%, marking a potential turning point in the mortgage market.

Reversal: Halifax customers can get a five- or even 10-year fixed-term mortgage with monthly repayments cheaper than a two-year loan - which has rarely, if ever, been the case

Reversal: Halifax customers can get a five- or even 10-year fixed-term mortgage with monthly repayments cheaper than a two-year loan – which has rarely, if ever, been the case

No-cost options have an even wider rate spread, priced at 2.94% for a two-year plan and 2.82% for a five-year plan.

In terms of monthly payments, a customer buying a £300,000 house with a deposit of £120,000 – or 40% – would pay £848 per month over two years and £806 over five years.

For those with lower deposits, two-year patch rates are also more expensive – but only marginally.

Someone buying the same £300,000 house with a deposit of less than £75,000 could get a 2.59% rate on a two-year solution with a fee of £995, paying £1,020 a month, per opposition to a rate of 2.58% over five years. -year paying £1,018.

Customers traditionally pay a premium for longer terms because they are guaranteed their rate at the same level for longer.

And until recently, two-year patches were much more popular, meaning banks could charge them cheaper rates to attract customers.

But the growing cost-of-living crisis has seen borrowers flock to five-year solutions as they seek the certainty of locking in their monthly payments for five years – meaning banks have the potential to lure many customers into them. fixing at competitive prices.

Experts say lenders are also worried about the impact of the cost of living crisis on their customers’ ability to pay their mortgages – meaning they also want to fix rates for longer.

Nicholas Mendes, technical director of mortgages at brokerage John Charcol, said: “In times of uncertainty, having the ability to repair is critical for homeowners.

“Historically, we’ve seen this favor the lender, with lenders often quoting a higher rate for a 5-year fixed rate to play on the emotions of a homeowner worried about how impending rate hikes will affect their ability to repay. the mortgage.

“But in recent years, Brexit, the pandemic and growing pressure on households have changed the outlook.

“Knowing how much you’re going to pay over a period of time removes any uncertainty – and lenders, as well as borrowers, now appreciate that stability.”

Pioneer?  Halifax is the first lender to buck the status quo by offering cheaper rates on longer-term solutions, but some experts believe it won't be the last

Pioneer? Halifax is the first lender to buck the status quo by offering cheaper rates on longer-term solutions, but some experts believe it won’t be the last

This means competition in the five-year-old fixed space is heating up, and experts believe they could get even cheaper.

According to Moneyfacts, the average two-year fixed rate – covering all deposit sizes – is currently 2.86%, down from 2.65% in March. And the typical five-year fix is ​​3.01%, down from 2.88% a month ago.

This shows that the yield spread between two- and five-year fixed rates is narrowing, standing at 0.23% in March and at 0.15% today.

This is Money looked at typical two-, five- and ten-year fixed rates at major lenders to assess the state of play.

These are based on the same £300,000 house purchase as in the example above.

Rates compared: two, five and ten year fixed mortgages on a £300,000 house
Lender Deposit size Costs Two years Five years ten years
Halifax £120,000 £995 2.54% 2.48% 2.48%
Halifax £75,000 £995 2.59% 2.58% 2.58%
Lloyd’s £120,000 £995 2.21% 2.29% 2.49%
Lloyd’s £75,000 £995 2.36% 2.51% 2.71%
At national scale £120,000 £999 2.04% 2.04% 2.09%
At national scale £75,000 £999 2.09% 2.09% 2.49%
Santander £120,000 £999 2.14% 2.24%
Santander £75,000 £999 2.19% 2.29%
NatWest £120,000 £995 2.20% 2.24%
NatWest £75,000 £995 2.20% 2.24%

Although some lenders are pricing exactly the same for two- and five-year repairs, experts predict others could follow the same path as Halifax and tip the scales in favor of cheaper rates on five-year repairs. .

Ashley Thomas, director of brokerage Magni Finance, said: “I wouldn’t be surprised to see more Halifax tracking and a lower two-year price.

“We have seen a big increase in people asking for fixed rates over seven or ten years, because the price difference can be as little as 0.05%.

A seven- or ten-year solution is worth considering if you’re in your dream home and aren’t planning on moving for a long time.

Ashley Thomas, Magni Finance

“It’s worth considering if you’re living in your dream home and aren’t planning on moving for a long time.”

According to experts, five-year fixes can be a good option because the borrower does not have to pay the costs associated with the remortgage after two years.

Samantha Bickford, mortgage specialist at Clarity Wealth Management, said: “If the circumstances suit a client’s short to medium term plans, I’m a big fan of a five-year fixed rate deal.”

“It’s frustrating when a client wants the lowest possible rate and it’s still a two-year contract.”

“Once I have explained to them that we will review this in 18 months, which could be at a potentially higher interest rate, a five-year fixed rate deal is usually the best option.”

Save money: Although five-year repair rates are generally higher than two-year rates, homeowners can save money on remortgage costs if they don't do it as often.

Save money: Although five-year repair rates are generally higher than two-year rates, homeowners can save money on remortgage costs if they don’t do it as often.

Being set on a longer deal can also be helpful for those expecting a change in circumstances, such as becoming self-employed.

Not remortgaging often means fewer affordability checks, which could give them time to sort out their finances before having to apply for another mortgage – provided they’re still able to meet their repayments.

However, the key thing anyone considering a five-year or longer solution needs to consider is how long they are likely to stay in their home.

If a borrower has to leave a fixed mortgage before the end of the term, there will usually be punitive prepayment charges, sometimes up to 5% of the loan value.

Although some mortgages can be “transferred” to another property, this is not always the case. There may be fees involved, and this can lead to complications.

Borrowers who transfer their mortgage to a home that is worth more than their current one will often end up with two mortgages at different rates and with different end dates, for example.

Simon Gammon, managing partner at Knight Frank Finance, said: “Repricing poses tough questions for borrowers.

“We advise most to avoid variable rates for the time being, unless they are required to repay the loan quickly.

‘The question then is how long do you want to stare? Are you likely to occupy the property for a short time, or could you stay there long term? In this latter scenario, a five-year fixed loan looks attractive.

“Ten-year fixed rates are another option, but a decade is a long time to commit and ten-year products often have quite expensive fees if you want to switch plans, so that’s something borrowers should take a close look.”

Mortgage rates have been rising since the end of 2021 as the Bank of England tripled its base rate from 0.1% to 0.75%.

This follows record lows of as little as 0.83% in the summer of 2021.

At 2.86%, the average two-year fixed rate for all deposit sizes is the highest recorded by Moneyfacts in more than six years, while the five-year equivalent rose above 3% for the first time since October. 2016.

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