They may be less common than two or five-year deals, but three-year fixed rate mortgages are now the cheapest on the market. 

It is thought lenders are seeking to attract borrowers who don't want to take a two-year fix - currently the most expensive - but also don't want to wait five years until they can next remortgage, because they think interest rates will fall.

The lowest mortgage rate currently on offer across the entire market is a three-year fixed deal from MPowered Mortgages. 

It is charging 4.07 per cent interest, fixed for three years with an arrangement fee of £999.

On a £200,000 mortgage being repaid over 25 years, that would mean paying £1,064 a month.

It beats the lowest two-year and five-year fixes on the market - currently both offered by First Direct at 4.23 per cent and 4.13 per cent respectively, but with a lower fee of £490.

Ravesh Patel, director and senior mortgage consultant at broker Reside Mortgages, said lenders were 'Targeting borrowers who are seeking a balance between securing a competitive rate and maintaining flexibility.'

While these top rates are only available to those buying with the biggest deposits - at least 40 per cent of the purchase price - it shows how the price gap between shorter term fixed rates and five-year deals is narrowing.

Prior to interest rates rising in 2022, mortgage borrowers usually found that the shorter time they fixed for, the lower their mortgage rate would be.

However, over the past three years this rule of thumb has been flipped on its head with lenders preferring to price shorter fixes above five-year deals. 

This was because many lenders - and customers - believed interest rates would go down significantly in the near future. This made five-year deals less attractive to some, and banks needed to price them more keenly. 

The last time the lowest three-year fixed rate was below the lowest five-year deal was in January 2022, according to Moneyfacts. 

Back then, the lowest three-year deal was just 0.94 per cent compared to 0.99 per cent for five-years.

The narrowing gap can also be seen when looking at the average mortgage rate across the entire market.

Between May and July last year the average two-year fix was 0.4 to 0.5 percentage points more expensive when compared with the average five year fix.

Fast forward to today and that premium has dropped to around 0.2 percentage points.

The same is true for three-year fixes, which are now broadly on par with five-year deals. The average three-year fix is currently 5.34 per cent compared to 5.32 per cent for five-year fixes.

Three-year deals are less commonplace, however - and not all lenders offer them. 

There are currently 587 three-year fixed rate mortgages out of 6,504 residential mortgage products overall, representing just 9 per cent of the market. 

Who takes a three-year fixed mortgage? 

Patel says he has noticed the narrowing gap between two-year and five-year fixed rates. 

'This trend reflects market anticipation that interest rates may have reached their peak and could potentially decrease in the coming years,' said Patel.

'Lenders seem to be pricing in the possibility of Bank of England base rate cuts further down the line, which makes shorter-term fixes comparatively more attractive. 

'However, I would say the market still has volatility as in the last few days we have seen some lenders increasing their rates.

'It's noteworthy that some three-year fixes are now even lower than five-year deals.

'This could certainly encourage more homeowners to opt for shorter fixes, especially those who believe they might be able to remortgage at a lower rate in a few years.'

Patel says that while two-year fixes and three years fixes will no doubt appeal to borrowers betting on rates being lower in the future, the five-year fix is still the preferred option for many households and home buyers. 

'It's important to acknowledge that many borrowers remain cautious due to the broader economic uncertainty. 

'While we are seeing increased interest in two and three-year deals, a significant number of customers – particularly those prioritising stability in their household budgets – are still choosing five-year fixes for peace of mind. 

'The cost-of-living crisis and concerns over long-term affordability mean that for many, locking in at a predictable rate remains the preferred option.

'Another reason why a five-year fixed rate has a premium is because many lenders now allow for greater borrowing on a five-year fixed rate product.'