Gap between two- and five-year fixed rates at seven-year low

Gap between two- and five-year fixed rates at seven-year low
 Credit: Hollie Adams/Bloomberg

The mortgage ‘rate gap’ is at its lowest in seven years indicating lenders are “keen for business”, according to Moneyfacts.

Analysis from the comparison site found the rate gap for 2020 - the difference between the average two- and five-year fixed rates - had fallen to 0.27 per cent, its lowest level since 2013.

The gap has continued to close going into 2021 and now sits at 0.17 per cent, the lowest recorded since June 2013, in the year after the Funding for Lending Scheme was launched by the Bank of England and HM Treasury.

Eleanor Williams, finance expert at Moneyfacts, said: “This is a low not equalled since 2013, which followed the launch of the Funding for Lending scheme in 2012 and implies that although the cheap funding schemes are drawing to a close, the low base rate environment and demand from borrowers means that lenders are keen for business.”

Mortgage approvals for house purchases remained at a 13-year high in November, while the bank rate has been at a record low of 0.1 per cent since March.

Average rate over 12-month periodJan-Dec 2012Jan-Dec 2013Jan-Dec 2016Jan-Dec 2019Jan-Dec 2020Today
Two-year fixed4.48%3.71%2.49%2.48%2.28%2.52%
Five-year fixed4.67%3.98%3.13%2.84%2.55%2.69%

Ms Williams added that although two-year fixed products had historically been popular with borrowers, some may find themselves “ultimately better off” with a five-year fixed rate mortgage while the economy remained uncertain.

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