Borrowers are increasingly turning to shorter-term fixed rate mortgages in response to higher rates, new analysis from Moneyfacts has found.
The share of Moneyfacts website users comparing two-year fixed rate mortgages increased from 48.4% in February to 55.6% in May, while demand for five-year fixed deals fell from 27.7% to 21.8% over the same time. Searches for 10-year fixed-rate mortgages also eased, falling from 6.5% to 4.5%.
Despite the average five-year fixed mortgage rate (5.68%) being lower than the average two-year fixed rate (5.78%) in May, demand continued to shift towards shorter-term deals. More borrowers appear to be willing to take a calculated risk that they will have the opportunity to refinance sooner at lower rates instead of securing the lowest available rate today.
Adam French, head of consumer finance at Moneyfactscompare, said: "The latest search data from Moneyfactscompare.co.uk reveals that demand is increasingly shifting towards two-year fixed rate mortgages, while the attraction to five and 10-year fixes continues to decline.
"However, this trend is not being driven purely by pricing. On 1 May, the average five-year fixed mortgage rate stood at 5.68%, 10 bps below the average two-year fixed rate of 5.78%. Despite this, borrowers continued to favour shorter fixed-term deals.
"It appears many borrowers believe the recent spike in mortgage rates will prove temporary and are willing to pay a small premium for a shorter fix in the expectation that they will be able to refinance onto a more competitive deal in the future.
"The continued decline in demand for 10-year fixes backs this up. Unsurprisingly, borrowers are reluctant to commit to today's rates for the long term, despite the payment certainty these products can offer.
"Unlike homeowners in some other countries who routinely fix their mortgage rates for decades, British borrowers want the security of a fixed monthly repayment but value the flexibility of shorter-term deals. Regardless of the volatility of the last few years many seem to be positioning themselves for a future where mortgage rates are lower than they are today.”
