Mortgage borrowers are increasingly opting for 2-year fixed-rate deals as expectations build that mortgage pricing will continue to fall over the coming months.

Analysis of mortgage searches on Moneyfactscompare.co.uk found the proportion of borrowers comparing 2-year fixed mortgages rose from 48.4% in February to 55.9% in June, while demand for 5-year fixes fell from 27.7% to 22.9%.

The shift has been most pronounced among remortgage borrowers, with searches for 2-year fixes rising from 59.5% to 66.5% over the period. Among homemovers, demand increased from 40.9% to 52.1%.

The trend comes as competition between lenders continues to drive down mortgage pricing, with borrowers increasingly choosing flexibility over the longer-term payment certainty that characterised the market following the sharp rise in interest rates during 2022 and 2023.

MORE FLEXIBILITY

Adam French (main picture, inset), head of consumer finance at Moneyfactscompare.co.uk, said: “Borrowers are still reluctant to lock themselves into longer-term deals and instead are favouring the flexibility of a 2-year fix as expectations for lower mortgage rates continue to build.

“However, it isn’t an approach without risk. As recent years have shown time and again, our volatile times can have a rapid effect on borrowing costs.

“The shift is also being supported by pricing. Borrowers with more equity will typically find that 2-year fixed rates are now slightly cheaper than comparable 5-year deals, making shorter fixes attractive for those looking to refinance again if rates continue to improve.”

DIFFERENT CHOICES

But he added: “However, first-time buyers and borrowers with smaller deposits are facing a different market. At higher loan-to-value ratios, 5-year fixed mortgages often continue to offer lower rates than comparable two-year deals, meaning these borrowers must weigh the lower initial cost against the flexibility of a shorter fixed term.

“That may help explain why first-time buyers appear to be diversifying their choices rather than overwhelmingly switching to 2-year fixes.”

While lower loan-to-value borrowers are increasingly benefiting from cheaper 2-year pricing, borrowers with smaller deposits continue to find 5-year fixes more competitively priced, highlighting the different choices facing first-time buyers compared with homeowners holding greater levels of equity.