Two-year fixes lose appeal

New research from The Times shows that two-year fixed-rate mortgage deals are becoming less popular with borrowers.

The high cost involved in remortgaging mean that even borrowers with good credit histories face thousands of pounds in fees.

According to the newspaper, a borrower who has 25% equity in their home and a £150,000 mortgage with Halifax will pay more than £3,300 extra over two years if they choose the lender’s lowest-rate two-year fix.

Meanwhile, borrowers at Cheltenham & Gloucester will pay more than £3,400 extra for a new two-year fix.

As a result, many of the 1.4 million homeowners coming to the end of fixed-rate deals this year will be seeking longer-term fixes or tracker loans.

The Council of Mortgage Lenders reported that a third of all mortgages taken out in January were tracker deals, while the number of fixed-rate deals fell to 57% of total mortgage lending, down from 64% in December.

Mortgage arrangement fees have been rising sharply. Two years ago the cost of setting up a two-year fixed-rate deal averaged £400, whereas today an arrangement fee of £1,000 or more is common.

At the same time, arrangement fees and interest rates on three and five-year fixed-rate deals are frequently similar to two-year deals.

Louise Cuming, of Moneysupermarket.com, the price comparison website that undertook the research, says: “Five-year fixed rates are becoming a lot more popular. This tends to be a good compromise, as borrowers are not tied in for too long.”

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