Mortgage Blog: Three-year mortgage deals hiding among the best-buys
Over the years, two- and five-year fixed rates have been the most popular with borrowers. Two-year deals have tended to offer the lowest rates - and therefore repayments - while five-year deals offer medium term stability and payment security.
Now, however, experts are suggesting that you should also consider a third option when choosing your next mortgage. The rates on three-year fixed rate mortgages have fallen to new lows, making them in many cases more competitive than rival deals.
Three-year deals now hiding among the ‘best buys'
New research from a leading financial company has found that while the cost of two- and five-year fixed rates has been rising in recent months, three-year deals have become more and more competitive.
Moneyfacts has found that the average three-year fixed rate mortgage deal now costs 3.79%, down from 3.83% in January and 4.06% a year ago.
In contrast, the average two-year fix has risen from 3.52% in January to 3.81% now and the Daily Telegraph reports that this ‘adds an additional £283 a year to a £150,000 mortgage.'
The average five-year fixed rate has also risen by almost 0.4% since January, from 3.92% to 4.21% - a difference of almost £290 a year on the same £150,000 mortgage.
Look hard for the best three-year products
While three-year deals may be increasingly competitive, experts believe that they can often be overlooked as they frequently don't feature in ‘best buy' tables.
Sylvia Waycot of Moneyfacts.co.uk said: "Attractive deals are available, but borrowers need to look beyond the overtly marketed deals. Three-year fixed rate deals can easily be overlooked as they tend not be the norm or readily marketed, and yet they are as viable a product as any two-year deal.
"There is no obvious reason that springs to mind why the three-year fixed should be lower priced than the two or five-year equivalents. In fact, all logic suggests that two and five-year fixed rates should be cheaper because the turnover of products is greater, the competition is greater and the majority of borrowers looking at fixed rates as an option are fixated on only two and five years.
"The less charitable may suggest that it is easy to hide the best rates in under-promoted products, knowing that the focus can be steered to the more profitable lines without too much effort."
Most of the leading lenders offer three-year fixed rate deals, but the Telegraph reports that the best deals are currently marketed by building societies. For example, the newspaper highlights the 2.64% fixed rate on offer through Norwich and Peterborough, which is available to 80% loan to value and has a £1,295 fee.
There are also competitive three year fixed rate deals on offer under 3% from the Yorkshire and Coventry building societies while the Loughborough offers a 3.95% three-year fix to borrowers with just a 10% deposit.