The proportion of borrowers opting for short-term solutions increased again in May, according to new figures from Moneyfactscompare.co.uk.
The share of website users searching for two-year fixed rate deals increased from 48.4% in February to 55.6% in May, while demand for five-year fixed rate deals fell from 27.7% to 21.8% over the same period.
The shift comes despite the fact that the average five-year rate remains cheaper than the average two-year rate at 5.78%, compared to 5.68%, Moneyfacts data shows.
More borrowers appear willing to take the calculated risk that interest rates will be lower in two years when they have to refinance, rather than committing to slightly lower rates now but not being able to switch for five years.
Adam French, head of consumer finance at Moneyfacts, said: “The latest search data from Moneyfactscompare.co.uk shows that demand is increasingly shifting towards two-year fixed-rate mortgages, while the appeal of five- and 10-year mortgages continues to decline.
“However, this trend is not purely driven by pricing.
“On May 1, the average five-year fixed mortgage rate was 5.68%, 10 basis points below the average two-year fixed rate of 5.78%.
“Despite this, borrowers continued to prefer shorter, fixed-term agreements.
“It appears that many borrowers believe that the recent spike in mortgage rates will prove temporary and are willing to pay a small premium for a shorter term, in the expectation that they will be able to refinance to a more competitive deal in the future.
“The continued decline in demand for ten-year fixes supports this.
“It is not surprising that borrowers are reluctant to commit to current rates for the long term, despite the payment security these products can provide.
“Unlike homeowners in some other countries who routinely lock in their mortgage rates for decades, British borrowers want the security of a fixed monthly repayment but value the flexibility of shorter-term deals.
“Regardless of the volatility of recent years, many appear to be positioning themselves for a future where mortgage rates will be lower than today.”
Mary-Lou Press, president of the National Association of Estate Agents (NAEA), added: “What’s particularly interesting is that we’re seeing buyers place a greater emphasis on flexibility than simply guaranteeing the lowest rate available.
“Many borrowers are aware that their circumstances may change over the coming years, whether it means moving, upgrading or reviewing their borrowing position, and shorter-term solutions can provide more options as those decisions arise.
“That said, borrowers should avoid making decisions based solely on interest rate forecasts.
“Affordability, future plans and potential early repayment costs remain important considerations, making professional advice more important than ever in today’s market.
“This trend also reflects a housing market where confidence is improving.
“Buyers appear to be more comfortable making long-term real estate decisions without feeling the need to commit to a mortgage product for five or 10 years.”