According to Moneyfacts, the average two-year fixed rate declined by 0.14% in May to 5.18%, while the average five-year fixed rate was 0.08% lower month-on-month at 5.1%.
Just before the mini Budget, these rates were 4.24% and 5.09% respectively. Rates are also more favourable than they were last year, with the two-year fixed rate at 5.91% in May 2024 and the average five-year fixed rate at 5.48%.
This month, a typical two-year fixed rate was just 0.08% higher than its five-year fixed counterpart, the smallest gap since rates became inverted in October 2022.
Notable declines were recorded across all loan-to-value (LTV) tiers, with the average two-year fixed rate at 60% LTV falling from 4.79% to 4.65%, and the five-year fix dropping from 4.69% to 4.58%.
At 90% LTV, the average two-year fixed rate dropped from 5.59% to 5.42%, while there was a 0.09% decline in the average five-year fixed rate to 5.24%.
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The average two-year fixed rate at 95% LTV was 5.63%, down from 5.62% last month, while the average five-year fixed rate declined from 5.62% to 5.58%.
In May, the average standard variable rate (SVR) fell further from 7.6% to 7.58%, and this was lower than the same month last year, when the rate was 8.18%.
Meanwhile, the typical two-year tracker rate dropped from 5.2% in April to 5.16% in May, and was also down from 6.12% in 2024.
More products on the market
The number of mortgages available increased from 6,870 last month to 6,993 this month.
There was more choice across multiple LTV tiers, rising from 442 options at 95% LTV to 462, and 876 mortgages at 90% LTV, up from 845 in April.
There were fewer options at 60% LTV, with Moneyfacts recording 786 products at this tier, slightly down from 797 in April.
The average shelf life of a mortgage shortened from 21 days to 19 days.
Rachel Springall, finance expert at Moneyfacts, said: “The momentum of rate cutting was rife throughout April, with lenders rushing to tweak their mortgage ranges, leading to a drop in the average shelf life of a mortgage to 19 days, down from 21 a month prior.
“Falling swap rates have been the driving force behind fixed rate mortgage cuts, and the movement has also fuelled a shortening gap between short- and longer-term fixed rate pricing. The inversion in rates could soon come to an end, with the rate gap between the average two- and five-year fixed mortgages now just 0.08%. Since the start of October 2022, the average two-year fixed rate has been higher than the five-year rate.”
She added: “However, borrowers who are worried about rate volatility in the months to come may still prefer a five-year fixed rate deal to secure their rate for longer, particularly as the overall average rate is at its lowest point for six months.
“There is more positive news for borrowers with smaller deposits, with the average two-year fixed mortgage at 90% LTV dropping to its lowest point since October 2022 (5.33%) and product choice overall at 90% and 95% loan to value remains at a 17-year high (March 2008).”
Springall continued: “Product choice continues to thrive, and this can create a positive outlook among borrowers. There will be millions of consumers coming off low fixed rate mortgages over the next year and they need both the support and appetite for new business from lenders to secure new deals.
“First-time buyers remain an integral part of the mortgage market, so any relief on stress testing or innovative products can make a huge difference to those struggling to find an affordable home. Borrowers excited by the arrival of cheaper mortgage rates would be wise to seek advice to assess the overall cost of any deal to ensure it’s the right choice for them.”
