After a turbulent couple of years, the average two-year fixed mortgage rate is getting closer to the average five-year fixed rate.
Average mortgage rates fell at the start of 2025, with the margin between two- and five-year fixed rates now at its lowest level in two years.
The average two-year fixed rate dropped to 5.48% at the start of the January while the average five-year fixed rate decreased to 5.25%, according to the Moneyfacts UK Mortgage Trends Treasury Report.
This is a gap of 0.23 percentage points, compared to a difference of 0.38 percentage points one year ago when average rates were 5.93% (two-year) and 5.55% (five-year).
Traditionally, five-year mortgages charged higher rates than two-year deals as they carried more uncertainty and risk for the lender.
But, since October 2022 (the month following the mini-Budget), two-year rates have been more expensive because of the volatility in the market and the expectation that rates would fall over the coming years.
“Borrowers who prefer to lock into a shorter-term mortgage may be pleased to see that the rate gap between the average two- and five-year fixed mortgage has dropped to its lowest margin in two years (January 2023),” Rachel Springall, Finance Expert at Moneyfacts, commented.
“However, it remains the case that the average five-year mortgage rate is lower than its two-year counterpart, which may be more enticing for those who want peace of mind for longer when it comes to their monthly mortgage repayments,” she noted.
Average rates dropped in the month to January across different loan-to-value brackets. For example, the average two-year fixed rate on deals with a 60% LTV has now fallen below 5%, standing at 4.96% at the start of the month.
This will be welcome news for borrowers after an uptick in rates at the end of 2024.
However, borrowers should be aware that mortgage rates may not drop as much as they initially hoped in 2025, as swap rates and an uncertain market could make lenders more cautious about setting the price of their deals.
“There was a mix of rises and falls during 2024 and it will be hard to predict where interest rates might go this year, particularly should stubborn inflation persist,” Springall remarked.
In a positive sign for the mortgage market, the number of mortgage deals on offer rose slightly to 6,508 at the start of January, while the average shelf-life of a deal remained stable at 21 days.
“Stability in choice is good news to borrowers who may be concerned about product availability as we enter 2025. Indeed, the turmoil of the 2022 fiscal announcement saw an unprecedented amount of mortgage deals pulled from the market,” Springall explained.
“It is hoped that there will not be a repeat of such upheaval in choice; it is much more likely to expect rates to fluctuate rather than mass product withdrawals,” she added.
See our charts for the most up-to-date list of the top mortgage rates.
Or see our weekly mortgage roundup for an overview of the best rates currently available for remortgages, homemovers and first-time buyers, as well as some Moneyfacts Best Buy alternatives.
UK Finance estimates that 1.8 million fixed rate mortgages are due to end in 2025, which means many households will be looking to remortgage over the next few months.
While those coming off a five-year fixed deal are likely to see their payments increase as rates remain higher than at the start of 2020, those at the end of a two-year fix may find they can secure a new deal that charges slightly less than their current rate.
Regardless of your situation, many borrowers will be better off by locking into a fixed rate deal rather than reverting to their lender’s Standard Variable Rate (SVR). The average SVR fell in January but, at 7.81%, it is still significantly higher than average fixed mortgage rates.
For further support in navigating the mortgage market, it can be useful to speak to a professional mortgage broker.
Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.
MAB is the preferred mortgage broker of Moneyfactscompare.co.uk
Get friendly, expert advice free of charge as a visitor of Moneyfactscompare.co.uk
Mortgage Advice Bureau have 1,600 UK advisers with 200 awards between them.
Speak to an award-winning mortgage broker today.
Call 0808 149 9177 or request a callback
Mortgage Advice Bureau offers fee free mortgage advice for MoneyfactsCompare visitors that call on 0808 149 9177. If you contact Mortgage Advice Bureau outside of these channels you may incur a fee of up to 1%. Lines are open Monday to Friday 8am to 8pm and Saturday 9am to 1pm excluding bank holidays. Calls may be recorded.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfactscompare.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.