Should you fix your mortgage now? How to think about it
Mortgage rates have climbed over the past several months, and the sub-2% deals many of us remember are long gone. If your current deal is coming to an end, or you’re trying to buy, the obvious question is whether to fix now or wait and see.
There’s no single right answer — and anyone who tells you there is probably hasn’t asked enough about your circumstances. But there are some useful ways to think it through, and a few things worth knowing about how mortgage rates actually work.
Where rates are at the moment
Correct as of 27th October:
- Lowest two-year fixed rates for homebuyers are starting from around 4.78%, with five-year fixes from around 4.95%
- For remortgaging, two-year fixes start from around 4.99% and five-year fixes from around 5.06%
- The Bank of England base rate is currently 3.75%, following six consecutive holds. The next committee meeting is due to be held on 5 November.
A year ago, the equivalent fixed rates were sitting closer to the high 3s. So the shift has been significant, and it’s been felt most by people coming off deals they took out two or five years ago.
Rates change constantly and the best deal for you depends on your loan-to-value, your circumstances and which lenders will consider your situation. The figures above are a snapshot, not a quote or formal illustration.
Why fixed rates don’t simply follow the base rate
This is the part that confuses a lot of people, and it’s worth understanding.
When the Bank of England changes the base rate, that directly affects tracker mortgages and likely the lender’s standard variable rates — payments move up or down more or less immediately.
Fixed rates work differently. They’re priced on what the markets expect to happen to interest rates over the next two, five or ten years, rather than on where the base rate sits today. Lenders are effectively pricing in their best guess at the future.
That leads to a slightly counterintuitive result: if the markets have already priced in several rate rises, and those rises then happen roughly as expected, fixed rates may not move much at all. And if the Bank raises rates by less than the markets had assumed, fixed rates could actually edge down even as the base rate goes up.
The reverse is also true. If rates rise faster or further than expected, fixed rates would be likely to follow.
The practical takeaway is that waiting for the next base rate announcement in the hope that fixed rates will fall straight afterwards isn’t a reliable strategy. The expectation is usually already factored in.
Nicola Bentman, Director and Mortgage & Protection Adviser:
“I’ve been advising clients in and around Stamford for over 25 years, and I’ve helped people through several very different rate environments in that time. What I’d say is that the headlines are never the whole story. The question isn’t really ‘are rates going up or down’ — it’s what works for your household, your budget and your plans for the next few years. It’’s a very different answer for a first-time buyer stretching to afford their first home with a tight budget, than it is for someone with ten years left to run, plenty of equity and significant disposable income.”
If your current deal is ending
This is where most people have a decision to make, and it’s also where the most expensive mistake happens — which is doing nothing.
When a current deal ends, you don’t simply stay on the same rate. You move onto your lender’s standard variable rate, which is typically higher than almost anything available on the open market. For a lot of households that’s a meaningful jump in monthly payments, and it happens automatically unless you act.
Most lenders will let you secure a new rate some months before your current deal expires. That gives you a degree of protection if rates rise in the meantime, and in many cases there’s still scope to switch to something better if the market improves before you complete.
Nicola Bentman:
“The one thing I’d say to anyone whose deal is ending in the next six months is don’t leave it to the last minute. We can usually look at options well in advance, and if something better comes along before completion we can often move you onto it. Slipping onto a standard variable rate by default is almost always the most expensive outcome, and it’s completely avoidable.”
Two years or five? How to decide
Rates for two-year and five-year fixes are currently fairly close together, which means the decision comes down less to cost and more to how you feel about uncertainty.
A shorter fix gives you the chance to review sooner. If rates do come down over the next couple of years, you’d be able to take advantage. If they don’t — or if they’ve risen further — you’d be remortgaging into a worse market.
A longer fix gives you certainty. You know exactly what your mortgage will cost each month for five years, which has real value when other household costs are moving around. The trade-off is that if rates fall significantly, you’d usually face an early repayment charge to get out early.
Fiona Pinto, Mortgage & Protection Consultant:
“When clients ask me whether to fix for two years or five, I usually turn the question around. I ask them to picture how they’d feel in two years’ time if rates had gone up — and then how they’d feel if they’d fixed for five and rates had come down. There’s no right answer, but people usually know straight away which of those two scenarios would bother them more. That tells us a great deal about the right product for them.”
What about a tracker?
Tracker rates are currently starting lower than comparable fixed rates in many cases, because fixed rates already have expected increases priced into them. Many trackers also come without early repayment charges, which means some borrowers use them as a holding position with the intention of switching to a fix later if the outlook improves.
The risk sits squarely with the borrower. If the base rate rises, your payments rise with it, straight away, with no cap on how far that could go.
Fiona Pinto:
“Trackers come up a lot at the moment, and they can suit some people very well — but only if there’s genuine room in your budget. I always ask clients to work out what their payment would look like if the base rate were a full percentage point higher than it is today. If that number makes you uncomfortable, a tracker probably isn’t the right fit.”
The honest answer
Whether now is a good time to fix depends on things no article can know: how much flex you have in your monthly budget, how long you plan to stay in the property, how much equity you hold, future life events and how comfortable you are with uncertainty.
What we’d say is that doing nothing is rarely the best option, and that the right product is the one that matches your circumstances rather than the one with the lowest headline number.
If your deal is coming to an end in the next six months, or you’re weighing up a purchase, we’re always happy to talk it through — whether that leads anywhere or not. We’ve been advising families across Stamford, Bourne, Oakham, Oundle and the surrounding villages for over 25 years, and as an independent broker we look across the whole market rather than at one lender’s range.
Contact us to discuss your mortgage requirements.
Published
This article is for general information only and is not personal advice. Your home may be repossessed if you do not keep up repayments on your mortgage. Choice Mortgages UK Limited is authorised and regulated by the Financial Conduct Authority (FRN 300688).