The difference between the average two-year and five-year fixed mortgage rate has shrunk by 0.06 per cent, from 0.42 per cent to 0.36 per cent since the beginning of the year, the lowest difference recorded in seven years, analysis from Moneyfacts.co.uk revealed.

The average two-year fixed rate has fallen by 0.03 per cent from 2.52 per cent in January 2019 to 2.49 per cent this month, while the average five-year fixed rate decreased by 0.09 per cent from 2.94 per cent to 2.85 per cent over the same period.

Meanwhile, the gap between the average five-year fixed and the 10-year fixed mortgage rates has increased by 0.04 per cent. This is despite the average 10-year fixed mortgage rate falling by 0.05 per cent – from 3.05 per cent in January 2019 to 3 per cent in June, the lowest recorded average 10-year fixed rate since February 2018.

Commenting, Moneyfacts.co.uk finance expert Darren Cook said: “It seems that the intense competition within the two-year fixed rate sector is also appearing in the five-year fixed rate market, with the average five-year fixed rate falling by 0.06 per cent more than its two-year counterpart since January this year. As a result, the difference between these two average rates now stands at 0.36 per cent, the lowest since January 2012 when the gap stood at 0.35 per cent.

“With the difference between the average two and five-year fixed rate at a seven-year low, the difference in the monthly repayment between these fixed terms will also be narrow. For example, on a repayment mortgage advance of £200,000 over a 25-year term at the average fixed rate for each respective term would see the average two-year repayment this month stand at £896.23, while the five-year average repayment amount would be £932.89, totalling a difference of £36.66 per month. Using the same mortgage criteria, the difference between the monthly repayments of the average five-year and 10-year mortgage rate (£948.42) this month is just £15.53.”

Cook added that, currently, mortgage rates appear to be competitive across all ranges, allowing borrowers the flexibility to choose whether they want to fix repayments over the short, medium or longer-term initial rate periods.

“However, borrowers must also remember to consider other factors, such as potentially greater fee expenses if they opt for a shorter initial fixed payment term and have to switch deals more frequently or the possible implication of mortgage tie-in costs if they wish to shop elsewhere during a longer initial rate period.”

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