Mortgage searches rise as borrowers favour two-year and five-year fixed rates

Mortgage searches rise as borrowers favour two-year and five-year fixed rates

Mortgage search activity increased during June, with borrowers continuing to show a clear preference for fixed-rate deals, according to the latest Moneyfacts Analyser data.

Two-year fixed-rate mortgages remained the most popular initial deal period by a significant margin. Their share of mortgage search traffic increased from 52.74% in May to 53.08% in June.

Searches for five-year fixed-rate mortgages also rose, increasing from 20.27% to 20.98% of total activity.

Although fixed rates continued to dominate the market, their overall share of mortgage searches slipped slightly from 87.76% to 86.74%. One-year fixed-rate mortgages remained the least popular option, accounting for just 0.97% of search activity.

More first-time buyers search for two-year fixed mortgages

The Moneyfacts data also showed an increase in the proportion of first-time buyers searching for two-year fixed-rate mortgages.

First-time buyer searches rose from 6.39% to 7.32% during June, which may suggest more prospective buyers are starting to investigate their mortgage options.

Search activity from people moving home remained almost unchanged, falling marginally from 21.25% to 21.22%.

Remortgage customers continued to account for the largest share of two-year fixed-rate searches. However, their proportion fell from 25.10% to 24.54% month-on-month.

The figures suggest that borrowers remain attracted to shorter fixed-rate periods, while a growing number are also considering the longer-term payment security offered by five-year deals.

Why are two-year fixed-rate mortgages so popular?

Two-year fixed-rate mortgages appeal to borrowers who want certainty over their monthly payments without committing to the same deal for too long.

A two-year fix could be attractive to someone who believes mortgage rates may fall over the next few years. Once the initial period ends, they may be able to switch to a more competitively priced mortgage, although there is no guarantee that cheaper deals will be available.

Could a tracker mortgage be worth considering?

Yes, espiecially if you have a larger deposit or lots of equity in your home and you want to remortgage. Tracker mortgages undercut many of the fixes by quite some margin and they normally follow the Bank of England base rate, often with a fixed margin added by the lender.

They can appeal to borrowers who expect interest rates to fall and who are comfortable with the possibility of their monthly payments changing. When the base rate is reduced, the interest charged on a tracker mortgage will normally fall by the same amount.

Some tracker deals also have no early repayment charges, which can make them useful for borrowers who want flexibility. They may suit someone expecting to sell their property, receive an inheritance, repay a large part of the mortgage or switch to a fixed rate later.

Is a five-year fixed mortgage safer during uncertain times?

Five-year fixed-rate mortgages are popular with borrowers who want to protect their monthly payments for longer.

A five-year deal can provide valuable security during periods of economic uncertainty because the mortgage payment will not change if the Bank of England base rate or wholesale borrowing costs rise.

This may be especially attractive to households with limited spare income, large mortgages or significant regular commitments such as childcare and school fees.

Borrowers may also be able to avoid the cost and inconvenience of remortgaging after only two years.

The main drawback is the longer commitment. Most five-year fixes have early repayment charges, so it may be expensive to leave the mortgage before the fixed period expires.

Two-year fix, five-year fix or tracker: which is best?

There is no single mortgage type that is suitable for every borrower.

A two-year fixed rate may suit someone who wants payment certainty but does not want to commit for too long. A five-year fixed rate may be more appropriate for someone who values stability and expects to remain in the same property for several years.

A tracker could appeal to someone prepared to accept changing payments in exchange for greater flexibility and the possibility of benefiting from future base-rate reductions.

The mortgage rate is only one part of the comparison. Borrowers should also consider:

• Arrangement fees and incentives

• Early repayment charges 

• The lender’s standard variable rate

• Overpayment allowances

• Portability

• The total cost over the initial deal period

• How long they expect to keep the mortgage and whether they expect their personal of financial sitatuon to change soon

A lower headline rate does not always produce the cheapest overall deal, particularly on smaller mortgage balances where a large arrangement fee can have a significant impact.

Aaron Strutt of Trinity Financial comments

“Two-year fixed-rate mortgages remain popular because many borrowers want certainty now but do not necessarily want to commit to the same deal for five years.

“Some borrowers hope mortgage rates will become more competitive and want another opportunity to review their options relatively soon. Others are selecting five-year fixes because they would rather ride out the economic uncertainty and know exactly what their mortgage will cost for longer.

“Tracker rates can be useful for borrowers who expect the Bank of England base rate to fall, particularly when the deal has no early repayment charges. The risk is that payments can also increase, so trackers tend to be more suitable for borrowers with enough financial flexibility to cope with changing monthly costs.

“The decision should not be based solely on predictions about interest rates. A borrower’s plans, mortgage size, disposable income and attitude towards risk are usually just as important.”

How Trinity Financial’s mortgage brokers can help

Trinity Financial’s mortgage brokers can compare two-year and five-year fixed rates, tracker mortgages and other available options.

Our brokers assess the mortgage rate, arrangement fee, early repayment charges and total cost to identify a deal suited to each borrower’s circumstances.

We can also help first-time buyers, home movers and remortgage customers understand how much they may be able to borrow and whether a shorter or longer initial deal period is more appropriate.

Source:  Moneyfacts Analyser data 

Speak to a Trinity Financial adviser today

The mortgage market moves fast — and the right advice can make a significant difference to the rate and deal you secure. Get in touch with our team to discuss your options.

Call Trinity Financial on 020 7016 0790 to secure a fixed or tracker rate mortgage, book a consultation, or use our appointment calendar

The information contained within was correct at the time of publication but is subject to change. It is for general information purposes and is not advice.

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