Average five-year fixed mortgage deal falls below 3% for first time
Over recent months, strong competition has been driving down the cost of new mortgages. Lenders have been in a fierce battle for market share and this has resulted in the cheapest mortgages ever offered in the UK.
A couple of weeks ago a leading building society launched the lowest-ever two-year deal but it's not just short-term deals that are becoming cheaper. New data has revealed that the average cost of a five-year fixed-rate mortgage has also reached a record low.
New research from a mortgage industry expert has revealed that the average cost of a five-year fixed remortgage rate has fallen below 3% for the first time on record. Data from Moneyfacts, the financial analysts, shows that the cost of medium-term fixed rates has fallen sharply over the past year in the face of growing demand from borrowers and fierce competition between lenders.
The average five-year fixed rate in November 2011 was 4.68%, and this had fallen to 3.3% by November 2015. Now, the average price of a five-year deal is just 2.98%.
Charlotte Nelson from Moneyfacts says: "The average five-year fixed rate dropping below 3% is great news for borrowers. In fact, borrowers opting for the average rate now would be £100 better off per month compared to two years ago [based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis].
"Just 20 months ago, the average two-year fixed rate stood at 2.97%. This means that borrowers coming to the end of a two-year term will find they can now get the extra security of a longer term for a similar price to their former deal."
Competition between lenders is helping to push down the cost of borrowing. As more and more lenders find parts of the market are overcrowded - the two-year fixed-rate market, for example - they are looking at ways to differentiate their product offering in order to attract new business. The longer-term fixed-rate market has offered a way in which lenders can stand out from the pack.
The fall in the cost of medium-term deals benefits customers looking for security, as Nelson explains: "With the gap between the average two-year fixed rate (2.35%) and the average five-year fixed rate standing at just 0.63% today, borrowers can now opt for the security of a longer-term fixed rate with little extra cost to their monthly repayments.
"Borrowers coming to the end of their fixed deal or those who are currently sitting on their SVR should seriously consider opting for a new fixed rate now, as there is no way of telling how low these deals can go."