Fixed long term mortgage rate popularity soars

Created: 04 Aug 2022
Buyer interest in the UK residential property market rises

The prospect of an anticipated rise in bank interest rate in the UK is driving mortgage borrowers  to secure longer term fixed rate products. The growing increase of two year and five year mortgage rates, alongside standard variability rates, is propelling the uptake of ten year deals, which have accelerated significantly in recent months. 


Both two and five year fixed mortgage rates rose for a ninth month consecutively in July, to 3.74 per cent and 3.89 per cent respectively, according to the latest report from Moneyfacts. This reflects a 1.4 and 1.25 per cent increase, respectively, since the Bank of England (BOE) base rate was first marked up in December 2021. 


Whilst 83 per cent mortgages undertaken by home buyers in June were five year fixed products, data from L&C mortgages indicates that a greater proportion (9 per cent) of borrowers chose ten year fixed products over two year fixed products (8 per cent). 


This shift comes as inflation topped 9.4 per cent, with lenders reacting to the likelihood of further monetary policy shifts by reducing availability of mortgage products. These have reduced by 3.5 per cent on a monthly basis to 4,400 residential mortgage products currently available in the UK, from 4,500 available in July last year, according to Bloomberg. 


With the average mortgage term in the U.S. at 30 years, there is significant scope for the UK to follow suit as existing homeowners act to lock in lower rates. The government has gone one step further, introducing the concept of 50 year intergenerational mortgages – with the debt passed down to children – as a viable means of enhancing access and inclusion.  


Benchmark lending rates, currently at 1.75 per cent, are expected by entities like Bloomberg Economics to reach 2.25 per cent by the end of the year. Moreover, standard variable rates paid by over a million UK mortgage borrowers exceeded 5 per cent for the first time in 13 years. These higher rates will continue to drive longer fixed term mortgage demand going forward.


‘Securing longer fix at the moment with the way things are going seems like a good idea, we can’t predict how long the interest rate increases will go on for. Borrowers tend to go for fixed rate because they like security,’ says Karen Noye, mortgage expert at wealth manager Quilter.”