Short-term fixed-rate mortgages have become more popular in recent weeks, as key indicators suggest that the Bank of England will cut interest rates sooner rather than later.
The Bank of England governor Andrew Bailey fuelled hopes of a cut within the next few months after saying “we are on the way” to a downward turn thanks to a faster than expected fall in inflation last month.
Last week we learned that the main headline inflation reading was marginally lower than anticipated at 3.4%.
The Bank of England’s unsurprising response last Thursday was to hold the bank rate at 5.25% – for now.
Tom Bill, head of UK residential research at Knight Frank, said: “High mortgage rates and persistent inflation meant transactions fell by a fifth last year and average prices dropped by 5% in the year to September.”
Simon Gammon, head of Knight Frank Finance, pointed out that a growing number of borrowers are more favourable when it comes to two-year fixed-rate deals.
“Two-year fixed mortgages have become the product of choice again,” said Gammon. “The gap between a two-year and a five-year fix isn’t huge, and many borrowers want to give themselves the opportunity to pick up a mortgage starting with a three in two years’ time.”
