Two and three-year mortgages remain uncompetitive

Two and three-year fixed-rate mortgage deals are becoming increasingly uncompetitive, as lenders pass on the cost of wholesale borrowing.

According to new figures from mform.co.uk, the most competitive two-year fixed rate deal, ranked on a true cost basis, is a dismal 45th while the most competitive three-year fixed rate is just 20th in the overall league table.

In response the mortgage comparison site is advising borrowers to consider variable rate deals – which can even a include lender's standard variable rates (SVR).

The news follows research released earlier this week by Spicerhaart Financial Services (SFS), which finds long-term fixed-rate mortgage deals are increasingly dominating the market.

mform believes the decline and fall of fixed-rates is yet more evidence of the confusion in the mortgage markets, as lenders price out fixed-rate business because of the increasing costs of securing funds on the money markets.

"Fixed-rate mortgages have recently dominated the market as borrowers prized security and certainty above everything else and lenders offered competitive deals," said Francis Ghiloni, mform business development director.

"However, the cost of security appears to be excessive and fixed rates are now uncompetitive across the board for most product areas. Even SVRs can be more competitive on a true cost basis."

Research from the Council of Mortgage Lenders (CML) finds fixed-rate mortgage deals account for 66 per cent of all deals in May this year, up from 59 per cent in April.

Currently the most competitive variable three-year deal is from Woolwich, finds mform, at 5.89 per cent with no start-up fees and an exit fee of £275.

Over three years on a £150,000 loan it would cost £38,345. The most competitive fixed-rate is ranked 20th and would cost £39,821.

Chris O'Toole