How Long to Fix a Mortgage For
Interest rates have been all over the place, remaining at elevated levels ever since the markets were spooked in the mini-budget and the Bank Rate was hiked 14 consecutive times. More often than not, households were locked into one of two choices: a two year or five year fixed rate. Variable mortgages have also been on offer.
At their height, the average two year fixed rate mortgage was at 6.86% in the summer, with five year ones only slightly behind at 6.37%. The choice consumers felt was either being tied into a high priced deal for longer to protect from even high prices later down the line, or to get a high priced deal for the short term and hope rates fell by the time it came to an end.
Now that inflation has fallen and the Bank of England is holding interest rates steady, lenders have begun to lower their rates. At the start of December, the average five year deal came in at 5.26%, with two year deals at 5.77%. While these are lower than the heights in summer, prices remain elevated from averages in 2021, which were about 2.5%.
Fix for Longer?
The main trouble with a fixed deal is that you never know if rates are going to become more beneficial soon after signing. This is why some longer term deals are available, but not all lenders offer them. 5 or 10 year fixes can offer much better rates, but if you’re purchasing your first home, you’d need a bigger deposit to get more beneficial rates.
There is anticipation in the market that rates are going to fall even further, but this isn’t going to be welcome news for the millions of people whose mortgage deals are coming to an end imminently. For now, they will have to settle for either two or five year fixed mortgages at whichever rates are most beneficial at the time.
Banks and lenders tend to predict where the base rate is going to move to, which brings down offerings on the market. Rather than worrying where the base rate is sitting, rely on what the banks are offering instead, and the signs point to a downward trend. The only issue with this view is that there is always the potential for rates to go up again.
The Most Popular Deals
Two Years on Top
Historically, five year fixes were the most popular option for mortgages. It now seems that more people have opted for two year fixes instead to swallow a short term increase, hoping that rates will have dropped by the time these finish. There is also data to suggest tracker mortgages have increased as well, purely because they don’t feature early repayment charges.
Being on a variable rate could be grounds to make a switch. Similarly, just because a fixed term is coming to an end, you don’t have to stay on the variable rate that’s automatically offered. Compare what you can get with your current supplier to what’s available on the market.
Tracker mortgages, which change price based on what the market is doing, offer flexibility. For those wanting to benefit, they can see payments lower as time goes by. The only downside is that if the Bank Rate goes back up, so will their payments.
Do What’s Right for You
The main thing is, it really depends on your circumstances. If you’re looking to stay in your current home, you can find the best deal by seeing what your current supplier offers. On the other hand, thoughts about moving will pull doubt into the equation as not all mortgages will be transferable. Don’t get tied into a long term mortgage if you’re thinking of uprooting and going elsewhere.
As with all financial decisions, you should consult a mortgage broker and independent financial advice before making a decision.