Interest rate gap widens between 2 and 5-year fixed-rate mortgages, says John Charcol

Date:Friday 10th September 2010
Author: Susanna Kavka

The difference in interest charged between two and five-year fixed-rate mortgages is widening, due to the nature of lenders' focus, according to a representative from John Charcol.

Ray Boulger, spokesperson at the firm, made his remarks after the Monetary Policy Committee announced that the base rate will stay at 0.5 per cent for another month.

He described how the two and five-year fixed-rate mortgages phenomenon has something of the "chicken and egg" about it.

Mr Boulger explained that lenders are focusing on becoming more competitive in the short term, which is widening the gap in interest rates in comparison with longer-term arrangements.

This, in turn, attracts customers to the lower two-year rates, with financial institutions putting renewed effort into such products due to consumer demand.

"Admittedly other factors as well as swap rates influence mortgage pricing but the chicken and egg concept seems to be relevant here," said the John Charcol representative.

Last month, the same company highlighted how the proportion of mortgages for purchases surpassed 60 per cent in July 2010, for the first time in decades.