According to Moneyfacts, it is the highest average two-year fixed rate since March 2015 when rates were 3.06 per cent.
The report added it is the seventh consecutive month of increases, with rates rising by 0.69 per cent since December.
It noted that the average two-year fixed rate at 95 per cent loan to value (LTV) was 3.35 per cent, which compares to 4.02 per cent a year ago.
It said product availability for two and five-year fixed rates had improved, reaching 369 in May, which is nearly back to pre-pandemic levels of 391 in March 2020.
Overall product availability has improved, with 5,087 residential products on the market, which is up from 4,925 in April and 3,927 in May last year.
The average rates for five-year fixed products have also risen, going from 2.79 per cent in May last year to 3.17 per cent in May this year. The report said that this was the highest for six years.
At 95 per cent LTV, five-year fixed rates now stand at 3.47 per cent, which compares to 4.17 per cent in the same period last year.
The report continued that the average shelf-life for products in May was 22 days, which is slightly up from April’s record low of 21 days.
It is also compares to an average shelf-life of 32 days in May last year.
Mortgage market could be fuelled by remortgagors
Eleanor Williams, spokesperson at Moneyfacts, said the mortgage sector had “demonstrated great resilience during unprecedented times” buoyed by strong demand and the race for space.
She said the market could continue to be fuelled by a shifting focus to remortgage borrowers as base rate rises encourage them to lock in fixed rate deals.
“This move may particularly be true for those who, by virtue of house price growth, could take advantage of increased equity in their home to potentially secure a lower rate,” she added.
Williams said the margin between two and five-year fixed rates was 0.14 per cent and the differential was the smallest since 2013 when it was 0.08 per cent.
“This could indicate that providers may be adapting their pricing towards borrower preference, potentially shifting towards longer term fixed rate options in order to protect themselves from further pricing volatility,” she explained.
Williams said first-time buyers could be “feeling disheartened” by rising house prices, mortgage rates and the cost of living, but pointed to improving availability of 95 per cent LTV deals.
She said: “While there may be some who are forced to delay their homeownership dreams due to wider economic pressures, recent movements in this sector seem to indicate that lenders could be keen to continue to cater to this demographic where possible.”
Williams also recommended that borrowers should “move swiftly to get the best option available” as product shelf-life remains low.