Data released today by Moneyfacts.co.uk shows the annualised rate gap for 2020 was 0.27% which is down by 0.09% since 2019 when the average difference was 0.36%.

It’s a far cry from the 0.64% gap between a two and five year deal in 2016 and creates more of an incentive for borrowers to opt for a longer-term fix, said Moneyfacts.

Eleanor Williams, finance expert at Moneyfacts, explained how the figures showed the annual average two-year fixed rate over 2020 was 2.28%, meaning the rate gap, when compared to the annual average five-year fixed rate of 2.55%, was just 0.27%.

(Source: Moneyfacts.co.uk)

“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,” Williams said.

“It is interesting to note that, despite the average rates increasing for two and five-year fixed mortgages since reaching record lows in July 2020 (1.99% and 2.25% respectively), the gap between the two today is even lower at 0.17%, which is even more positive for potential borrowers considering longer-term fixed rates.”

Indeed, two-year fixed products have historically been popular with borrowers. But Moneyfacts said, while the economy remained full of uncertainty, some people may find themselves ultimately better off with a five-year fixed rate mortgage.

Williams suggested for some borrowers this may be an opportune time to secure the peace of mind a longer-term fixed rate can bring.

She added: “While economic uncertainties continue, with wildly differing views on how house prices and indeed interest rates themselves will fare over 2021, it is still vital that the property market keeps moving.

“For borrowers who are concerned about market fluctuations and wish to be able to budget easily, a five-year fixed rate mortgage can provide some much-needed peace of mind and security.”