The curious case of the five year fixed rate mortgage

Analysis from moneysupermarket.com has found that whilst the total number of mortgages available today is just 12 per cent of what was available back in April 2007, there is one stark anomaly - five year fixed rate mortgages. In April 2007 there were just 39 five-year fixed rate deals available; today that number has soared to 411. Over the same period the number of two-year fixed rate deals has fallen from 3,767 to 612, and the number of three year fixed rate products has plummeted from 2,398 to 449.

Hannah Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, said; "To see the huge drop in the number of mortgages available compared to three years ago is a sobering reminder of just how badly the mortgage market was hit, and whilst product numbers are steadily increasing, this recovery has been modest so far when you consider historical numbers.

"It is interesting that, whilst all other mortgage types have fallen off a cliff, the number of five year fixed rate deals has actually increased. No doubt providers are keen to lock in customers for the long term in order to gain some stability for their mortgage books, but a ten fold increase in longer term fixed rate deals suggests that take-up of these products is probably quite low. Everyone knows that the only way rates can go is up, but five years is a big bet to place."

The analysis also shows that five year deals carry, on average, a higher rate today than they did three years ago - despite the base rate having fallen 4.75 per cent over this period. The average five year fixed rate deal in April 2007 was 5.74 per cent, whereas the equivalent average rate today is 5.82 per cent. This means that margins over the base rate have rocketed from 0.49 per cent to 5.32 per cent.

Hannah Mercedes Skenfield continued, "However, for those that like the security of a long term fix, there are some benefits in fixing for a five year term. Fixing for just two years means you will not benefit from the currently low base rate and in fact when you come to fix again at the end of the term, fixed rates will inevitably be higher as base rate will have risen - and you will see an inevitable increase in your monthly payments.

"If borrowers are comfortable fixing for five years then there are still a few worthwhile products available such as the Britannia and First Direct mortgages. Base rate is likely to increase back to normal levels in five years; therefore the chances of benefiting in the longer term are high. If you are comfortable locking into a deal for five years then now is a good time as any."