Traditionally, a two-year fixed rate has been lower than a five-year equivalent; however, this changed in October 2022 when five-year fixed rates became cheaper.

This was the market's way of saying they were uncertain of downward rate movements in the next two years, but they are more optimistic for the next five years.

According to Moneyfacts, the gap between two- and five-year fixed-term mortgage rates has dropped to the lowest margin in two years.

The average two-year fixed rate is 23 basis points higher than the five-year equivalent, but the gap has been at its lowest margin since January 2023, when the spread was 16bps.

Our quick independent market research (13 January 2025) revealed similar results; the rate difference is very close, and we have included some examples below. A difference between 0.25 and 0.39 basis points.

On a £100,000 mortgage, a 25 basis point difference is just £20 a month.

Why are mortgage rates converging?

With the two rate types converging, what is the market whispering to us now? Has the outlook over five years diminished, or has the outlook over the next two years improved? We'll leave that discussion to you and your favourite economist.

As our new Chancellor, Rachel Reeves, is struggling with the economy. Gilt yields have increased, reflecting higher borrowing costs for the UK government. We suggest the market is uncertain.

As of November 2024, the UK's Consumer Prices Index (CPI) inflation rate stood at 2.6%, up from 2.3% in October. The Bank of England (BoE) anticipates inflation will rise to 2.8% by the third quarter of 2025 before easing.

Two-year swap rates rose to 4.278% on 9 January from 4.069% a month ago, while five-year rates lifted to 4.147% from 3.810% over the same period, according to Chatham Financial. SWAP rates, which are key for determining mortgage rates.

This could indicate a moment of uncertainty on Bank Base Rate movements.

What about the Bank Base Rate?

The next MPC meeting is 6 February 2025, with inflation currently above the target 2% a significant Bank Base Rate decrease (or any at all) is expected.

However Santander predicts 4 base rate cuts in 2025 ending the year at 3.75%.

See: MPC November 2024 Monetary Policy Report

Todays Market Research

A First-Time Buyer Purchase, fee-free with Leeds Building Society, at 80% LTV:

A homeowner remortgage, fee-free with Principality, at 80% LTV:

A home move purchase, fee-free with HSBC, at 80% LTV:

A buy-to-let remortgage (personal name) fee-free, with Newcastle, at 80% LTV:

Sources

• Mortgage Solutions
• Mortgage Stratagy

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