Borrowers are increasingly looking at two-year fixes and variable options in the hope that the current spike in prices will be short-lived, analysis from Moneyfacts suggests.
Despite the fact two-year fixed rates have jumped by more than five-year costs, it appears that borrowers are wary of locking in for too long.
It seems many would prefer to opt for a slightly higher two-year deal and take their chances that prices will come down by the time their fixed rate ends, Moneyfacts found.
Analysis of borrowers comparing deals in the 30 days to April 2 compared to the 30 days to March 2 reveals:
Searches for two-year fixes have increased by 13%, while searches for five-year fixes are down by 9%.
There has also been an increase in searches for variable rate deals, up by 7% among all borrowers and by 47% among home movers, but this is from a very low base.
The average two-year fixed rate was 99bps more expensive and the average five-year fixed was 81bps higher at the beginning of April than at the start of February, while the average variable rate has climbed by 28bps.
Moneyfactscompare.co.uk head of consumer finance Adam French says: “The speed and scale of rate rises over the past few weeks has quickly shifted borrower behaviour.
“With five-year fixes jumping by more than 80 basis points, many are pivoting towards two-year deals in the hope that the rate spike being driven by the conflict in Iran proves short-lived.
“Demand for five-year fixes is usually strongest among homemovers, who value certainty in their monthly payments, particularly as they have usually taken on a larger debt.
“Instead, there has been a dramatic swing towards shorter term options.
“Remortgage borrowers who are already facing significant payment shocks also appear reluctant to lock in at elevated rates for an extended period.
“Some borrowers may also be banking on rates falling sooner than the market is currently expecting.
“There has been a notable, if still relatively small, shift towards variable rate mortgages, especially among homemovers.
“While these products remain a minority choice, the uptick suggests some borrowers are willing to take on more risk, betting that rates could fall back in the near-term.”
