Money Blog: Two-year mortgages ahead of five years as eyes turn to Bank of England decision

Every Friday we review the mortgage market, listening to the industry and bringing you a breakdown of the best rates courtesy of independent experts at Moneyfactscompare.co.uk.

“Repressed.”

This is how Moneyfacts currently describes the mortgage market.

For a few short weeks of summer, we saw some excitement as a wave of lenders tried to outbid their rivals on deals, but that has slowed and in recent weeks “the outlook has been much more muted,” says spokeswoman Caitlyn Eastell.

However, things could escalate again next week when the Bank of England announces its next base rate decision.

Analysts believe there is an 80% chance of a cut, though the likelihood has declined since the Office for Budget Responsibility said inflation – currently at 1.7% – would be higher as a result of Wednesday’s budget passage.

Lenders are “watching upcoming interest rate decisions closely and responding quickly to any reductions,” Eastell says.

He points out one interesting thing that happened after the Bank reduced the base rate to 5% from 5.25% in August: two-year fixed rates in September slightly surpassed five-year fixed rates as the most popular product.

This is the result of the LMS analysis – with a share of 44% and 42%, respectively.

This is a change, and mortgage holders who have opted for a two-year fixed rate may be assuming that rates will fall even further.

“While the average five-year fixed mortgage rate is lower than its two-year counterpart, it will depend on a borrower’s situation which choice is best for them,” says Eastell.

A notable deal this week came as Barclays cut interest rates across its range of residential mortgages, returning its two-year offer to borrowers at below 4%.

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Moneyfacts also rounds up so-called ‘best buys’ which go beyond the lowest rates and take into account incentives and fees…