Britons face a tough choice over whether to fix their mortgage for two or five years, as the gap between rates on the two narrows. 

For those with a 40 per cent deposit or equity, the cheapest two-year mortgage on the market is currently 3.89 per cent, while the cheapest five-year deal is 4.07 per cent. 

Five-year fixes are still cheaper on average, though, with the average five-year fix at 5.15 per cent and the average two-year fix at 5.30 per cent, according to Moneyfacts. 

Not so long ago, there was a clear preference among borrowers for five-year fixed rates - but that now looks to be changing. 

Mortgage rates are forecast to fall in the coming months and years - meaning that a shorter deal could be more attractive. 

In 2022, interest rates were much lower than today for the majority of the year, but spiked after the late September mini-Budget sent markets into turmoil. 

In that year, 60 per cent of borrowers opted for a five-year fix, according to UK Finance data, with many in the early part of the year eager to lock in a relatively low rate. Only 28 per cent went for the two-year option.

Even in 2023 when rates remained volatile, roughly one third of borrowers fixed for two years, while almost one half fixed for five years - perhaps to protect themselves in the case of further rate spikes. 

But in 2024, borrowers were split. Some 43 per cent of people taking out a mortgage opted to fix for two years while 45 per cent chose to fix for five years. 

The move towards shorter fixes was likely because borrowers hoped rates would start to reduce, as the Bank of England began to cut its base rate.  

The prospect of interest rates falling the future has taken another turn in recent days following Donald Trump's tariff announcements.

Financial markets are now pricing in greater chances of economic recession with interest rate cuts now forecast to be cut faster than before. 

Some are now forecasting that the Bank of England will cut rates four more times this year, meaning they could end 2025 at 3.5 per cent, down from 4.5 per cent now. 

This has already translated into mortgage rate cuts from some lenders. 

More borrowers consider a two-year fix 

Ravesh Patel, director and senior mortgage consultant at broker Reside Mortgages says he has seen a preference for two-year fixes among his customers of late.

'With rates having come down slightly from last year's highs, many borrowers -especially first-time buyers and those remortgaging - are opting for shorter-term fixed deals - typically two years - in the hope that rates will be lower when they come to refinance.

'However, there is still demand for longer-term fixed rates from those seeking payment stability, particularly among homeowners who want to budget with certainty.

'We are also noticing that more clients are prioritising affordability, with some opting for longer mortgage terms to keep monthly payments lower.'

How to make YOUR decision  

Nobody wants to fix for five-years at 4.5 per cent to find out they could have taken the same rate for two years, and then remortgaged at 3 per cent 24 months later.

But it could easily work the other way - with a sense of relief if mortgage rates rise back above 5 or 6 per cent again.

There is also a scenario where mortgage rates remain broadly where they are for the foreseeable future. 

In that case, fixing for five years may still work out the more cost-effective solution, as it avoids paying a second round of arrangement and administration fees. 

Mark Harris, chief executive of mortgage broker SPF Private Clients, says the majority of his customers looking to take out a new mortgage this year have opted for shorter fixes.

He says that only a quarter are opting for a five-year fix, as opposed to three quarters who are opting for two-year or three year deals - the majority being two-year fixes.

'We are expecting rates to fall further but what is unclear is how quickly this will happen,' he says.

'The narrowing of the margin between two and five-year fixes recently reduces the complexity of the decision, but for those who can afford to be wrong, a two-year fix looks better value.'

Patel says the two-year versus five year is a discussion he is regularly having with clients.

'If a client is unsure, we first look at their priorities, whether that's securing the lowest possible monthly payment, having flexibility, or locking in long-term stability,' says Patel.

'We also consider their financial circumstances, future plans, and risk appetite. For those particularly uncertain about future interest rate movements, we discuss the pros and cons of different options, including fixed versus tracker rates, as well as product transfers versus full remortgages. 

'We also run affordability checks under different scenarios to help them see the  impact of their decision.'

Will mortgage rates be lower in two years?

While it looks like mortgage rates may go slightly lower over the coming weeks or months, there is no way of knowing where they will be in two years.

Fixed-rate mortgage pricing is largely based on Sonia swap rates - the inter-bank lending rate which shows where banks think mortgage rates will be two or five years in the future. 

As of yesterday, five-year swaps had fallen to 3.63 per cent, down from 4.08 per cent on 27 March.

Meanwhile two-year swaps were at 3.66 per cent, down from 4.11 per cent on 27 March.

Given that the Bank of England base rate is currently at 4.5 per cent, it means that future interest rate cuts are already somewhat baked into mortgage pricing. 

'Lenders price their mortgage products based on swap rates, which factor in future interest rate expectations,' said Patel. 

'Given the market has already priced in some potential base rate cuts, mortgage rates may not fall significantly in the short term. 

'Instead, we could see gradual reductions rather than sharp declines. 

'Borrowers should also consider that while waiting for rates to drop further, there is always a risk that economic conditions shift and delay rate cuts.

'Ultimately, anyone needing a mortgage now should base their decision on their current needs rather than trying to perfectly time the market.'