Borrowers' shift into two-year fixes is prompting concern that the market may face a concentrated refinancing peak in 2027
A rapid shift towards two-year fixes is fuelling concerns that the UK mortgage market is creating a refinancing bottleneck for 2027, as borrowers choose short-term deals now priced below their five-year equivalents. Moneyfacts data shows that 53% of borrowers comparing mortgages in November viewed two-year options, with uptake reaching 70% among first-time buyers and 62% among remortgagers.
Two-year pricing has fallen to around 4.86%, while five-year fixes sit near 4.91%. Combined with a near 37% rise in Q3 gross mortgage advances, brokers warn that today’s lending could mature alongside the heavy five-year cohort created during the market shocks of 2022.
Many advisers believe the industry is already heading towards a pressure point. Harry Arnold, director at Anderson Harris, said: “We have seen a steady increase in 2-year fixed rate this year, particularly since the inflation data appears to be flattening off in the ONS releases this autumn and a benign budget when it came to market volatility.”
He said many clients now feel rates will be lower in two years or remain flat, adding: “Two-year fix money is also coming in cheaper than five-year options.”
Borrowers are also valuing flexibility. Arnold said the shorter term appeals to those considering a move or further borrowing as affordability improves. He warned that the volume of maturities now forming could stretch capacity: “There is already a huge refi crunch in 2027. As a firm we see 2027 as the biggest year for refinance in our 14-year history and if the property market also picks up on the back of lower rates, then it will be a major task to provide everyone a safe landing on to their new rate.”
Lenders reject the suggestion that aggressive two-year pricing is tactical. Graham McClelland, CEO at Gen H, said: “I think the move in two year fixed rates is primarily a cost of funds related move. Lenders have seen a chance to reduce costs for their customers and have passed this through.”
He also said the shift is being driven by borrower behaviour rather than lender strategy: “Most of what is happening now is driven by the consumer and broker behaviour rather than a specific move by lenders to target a certain type of lending.”
In the buy-to-let sector, landlords often want two-year fixes but cannot meet affordability criteria for shorter terms. Jeni Browne, business development director at Mortgage Finance Brokers, said: “It’s down to expectation on rate cuts. However, our focus is buy to let and so the rental calc is affected by the term of the fix, so often, despite our clients wanting a two-year deal, they have no choice but to take a five-year.”
She agreed that today’s trends could feed into a 2027 maturity peak. “The hope is very much that in 2027 rates will have eased further and so this pays dividend to those borrowers.”
Browne said the pricing strategy appears broad rather than skewed towards shorter terms: “I think lenders are all pricing as aggressively as they can across all rates to win business. Looking at swaps and lenders’ pricing, I see no discernible difference on margins between two- and five-year pricing just now.”
Some advisers worry that the narrowing price gap between two- and five-year fixes risks drawing borrowers into rate speculation. Matthew Arena, managing director at The Brilliant Group, said: “In the residential world, second guessing the future of interest rates is not something advisers should be encouraging.” He said suitability should remain central: “Good advice should protect borrowers from making these decisions based on interest rate speculation and focus on suitability.”
With two-year fixes now dominating borrower interest, and the 2022 five-year cohort already locked into 2027 maturities, the market faces a structural challenge. Unless borrower behaviour shifts early next year, lenders and brokers may be confronting one of the busiest and potentially most stressful refinancing periods of the decade.
