The data showed demand for two-year fixed rates had risen by 13% whilst five-year fixed rates had fallen out of favour

More borrowers are choosing two-year fixed rate mortgages and variable rate options due to recent price hikes, new research has revealed.

Rates on fixed mortgage have been surging in recent weeks as events in the Middle East have driven up oil costs and this has fed into mortgage pricing.

This has had an impact on borrower behaviour as those taking out mortgages look for more flexible options, according to analysis by Moneyfactscompare.co.uk.

It has compared borrower searches in March compared to those in February and found, following the beginning of the war in Iran, there was a shift to shorter fixes.

The data showed demand for two-year fixed rates had risen by 13% whilst five-year fixed rates had fallen out of favour. Indeed, the demand for these longer-term fixes dropped by 9% with remortgage borrower demand slumping further by 15%.

But there was also a spike in interest for variable rates from movers. Moneyfactscompare found homemovers drove a 47% jump in variable rate searches, albeit from a low base (12% share).

In this same time period two-year fixed rates increased on average by 0.99% and five-year fixed rates by 0.81%. Variable rates, in comparison, rose by just 0.28%.

Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: The speed and scale of rate rises over the past few weeks has quickly shifted borrower behaviour. With five-year fixes jumping by more than 80 basis points, many are pivoting towards two-year deals in the hope that the rate spike being driven by the war in Iran proves short-lived.

Demand for five-year fixes is usually strongest among homemovers, who value certainty in their monthly payments, particularly as they have usually taken on a larger debt, he said.

Instead, there has been a dramatic swing towards shorter term options. Remortgage borrowers who are already facing significant payment shocks also appear reluctant to lock in at elevated rates for an extended period, he said.

Some borrowers may also be banking on rates falling sooner than the market is currently expecting. There has been a notable, if still relatively small, shift towards variable rate mortgages, especially among homemovers, he said.

He added: While these products remain a minority choice, the uptick suggests some borrowers are willing to take on more risk, betting that rates could fall back in the near-term.