Mortgages: a guide to fixed rates

Are you wondering whether to fix your mortgage rate? This is what you need to know

Fixed rate mortgages are the most common type of deal on the market. But knowing how long to fix for can be tricky, especially when there’s a lot of uncertainty in the wider economy.

In this guide, I break down how long you can and should fix for, the implications of ending a fixed rate early and how to find the best one.

What is a fixed rate mortgage?

Fixed rate mortgages charge you a set interest rate for a specified period of time, usually two, five or 10 years.

Unlike a variable rate mortgage where the interest rate can fluctuate, impacting your monthly payment, a fixed rate mortgage keeps your monthly payments the same throughout the term.

Why do people get one?

Fixed rate mortgage payments are usually cheaper than the standard variable rate (SVR) on offer from lenders. 

For example, the average SVR is 8.54% (as of June 2024), compared to the top five-year fix from Nationwide at 5%. On a mortgage of £200,000, this is a difference of around £446 per month.

Rates can vary across lenders and what you’re offered will depend on how much equity you have and the term of the fixed rate. 

Fixed rate mortgages are also popular because people like the certainty of how much they pay each month.

How long can you fix for?

Typically you can expect to see fixed interest rates with terms of between two and 10 years. While it may be tempting to lock in the rate for as long as possible and protect against future interest rises, you could end up paying more if interest rates fall. 

Saying that, if you opt for shorter terms, although they give you more flexibility, you’ll end up paying more in mortgage fees every time you apply for a new one. 

It’s a bit of a balancing act and you’ll need to weigh up if you value longer-term certainty of paying the same every month over short-term flexibility, in the hope rates will fall. I’d definitely recommend speaking to a mortgage broker about your options (more on this below).

How long should you fix for?

It’s the question most people ask, but there’s no simple answer. 

How long you should fix for depends on lots of different factors, but let me break the basics down below. I’ve calculated the savings comparison based on a mortgage of £200,000 on a variable rate of 8%, costing around £1,540 per month.

Two year fix

This could be good if you’re anticipating a relocation or significant income change which means you’re likely to move home in the near future. Or if you’re a first-time buyer who wants to move up the property ladder fairly quickly.

Benefit: Shorter commitment so you can take advantage of better deals sooner if rates drop.

Risk: If the economy is struggling for longer, it can push rates up. You may end up paying more by having to move to a new, more expensive deal sooner. Plus, every time you remortgage you need to pay fees so it could end up being expensive if you keep opting for short-term deals.

Potential saving v SVR: On a two year fix at 5%, payments would drop to around £1,169, saving approx £371 per month. 

Five year fix

This may be suitable if you’re happy where you’re living with no immediate plans to move or you’re parents with young kids who want a bit of financial stability until they’re older.

Benefit: Can shield you for longer from potential rate hikes if the Bank of England rate is consistently increasing.

Risk: If the standard variable rate or other deals fall below your fixed interest rate, you may not be able to switch without paying an early exit fee, which could be thousands of pounds. 

Potential saving v SVR: On a five year fix at 4.75%, payments would drop to around £1,140, saving approx £400 per month.

10 year fix

If you’re in your forever home or heading towards the last 10 years of your mortgage term and want certainty around payments, you consider a 10 year fix.

Benefit: Can provide long-term certainty in how much you’ll pay and lower additional costs associated with switching deals more frequently.

Risk: A lot can happen in the economy over 10 years, so being tied in for longer could mean you miss out on much lower interest rate deals.

Potential saving v SVR: On a 10 year fix at 4.5%, payments would drop to around £1,111, saving approx £429 per month.

Can you exit your fixed rate early?

Yes, you can. But (and it’s a big but) most fixed-rate mortgages come with early repayment charges (ERCs) which can be quite hefty.

You have to pay ERCs when you pay off your mortgage early or switch to a new interest rate deal before the end of the term. Lenders charge them to make up for the lost interest they’d  receive if you’d stuck with the deal for the full term.

The ERC you’ll pay is usually a percentage of the entire mortgage you still owe. It’s typically between 1-5% but this percentage tends to decrease with every year you have it.

This is how it usually works, using the example of a £200,000 mortgage:

 ERCERC amount
Leaving the deal in year one5% of £200,000£10,000
Leaving the deal in year two4% of £200,000£8,000
Leaving the deal in year three3% of £200,000£6,000
Leaving the deal in year four2% of £200,000£4,000
Leaving the deal in year five1% of £200,000£2,000

How can you find the best rate?

Using a broker is a really good place to start as they’ll do all the searching and comparing for you. Make sure you pick one that works with the whole of the market, like Habito or L&C Mortgages. They’re both free as they rely on commission from lenders for payment for their services.

A broker will ask you about your income and outgoings to see what fixed rate you can comfortably afford to pay. They’ll search available deals for you and come up with a list of the ones you’re most likely to be approved for. You can then compare different rates and see what you’ll be paying each month before choosing and going ahead.

It can be tempting to just stick with your current lender and switch to one of their deals (I’ve done this myself when I left things too late), but this can often be more expensive. If you’re organised and start looking for a new deal six months before your current one comes to an end, you could save £1,000s in the long run.

Finding the right rate is the priority, but you also want a reliable lender. Reading reviews has always helped me to get a sense of how current and past customers rate their commitment to service, responsiveness and their overall experience.

How long should you fix for?

Katy’s analysis

I’m a homeowner who’s always preferred certainty around how much I’ll be paying, so I usually choose a longer fixed rate. A few years ago, I opted for a 10-year fix and it worked out brilliantly for me. I managed to lock in a 2.19% deal just before rates started climbing. I was happy with the lender, I knew I had no plans to move or give up my homeownership status, so it was the smartest choice for me.

But, although longer fixed rates are great for that extended certainty, they carry a risk. You could feel settled right now and have no plans to move but you never know how life will change over the next five to 10 years. Relationship break-ups, losing your job, having children or needing to relocate for work are just some of the life events that could mean you have to move unexpectedly.  

A lot can happen economically in a decade, too. If wider interest rates go up, you’ll benefit from being on a fixed rate deal, but you’ll also be stuck on it if rates go down. 

I was happy to take the risk as I felt comfortable with the amount I’d be paying even if future rates dropped below 2.19%, but it’s a crucial consideration.

Shorter fixes might be better if the market’s a bit shaky and you want to lock-in until the economy settles and you can grab a better rate. Sometimes interest rates rise due to temporary bumps in the economy or politics, rather than increases due to longer term events like a recession.

It’s a gamble though. Rates could stay high or even climb just as your fixed rate term is ending so you have to be prepared for that possibility.


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