Written by: Danny Belton - Head of Lending
When shopping for mortgage deals, you’ll see the term “fixed rate” come up a lot. What exactly does this mean and how do fixed mortgage rates differ from other mortgage deals?
Here’s everything you need to know about fixed rate mortgages.
In this article:
- What are fixed rate mortgages?
- How do fixed rate mortgages work?
- What is the Bank of England base rate?
- Are fixed rate mortgages likely to go down?
- What are the benefits of a fixed rate mortgage?
- What are the disadvantages of a fixed rate mortgage?
- Stay ahead of the curve with mortgage monitoring?
- Are there alternatives to fixed mortgage rates?
- How mortgage advice can help you choose
- Frequently asked questions
What are fixed mortgage rates?
A fixed rate mortgage is a deal where the interest on your monthly mortgage repayments remains the same for a set period of time. This time period is pre-arranged with your lender and will likely operate across 2, 3, or 5 years.
How do fixed rate mortgages work?
If you have fixed mortgage rates then you’ll pay the same amount every month for the duration of your fixed rate term. This is not the same as your mortgage term. Though we noted that 2, 3, or 5 year fixes are the norm, you might even be able to fix for longer - 10 years, for example.
Try our repayment calculator to get an idea of how much you’d be paying per month on a fixed rate.
Even if interest rates increase across the country, your mortgage rates will remain the same. If we are going through a period of big change, as we’ve seen in the last two years, this can be useful for budgeting. However, if interest rates take a big drop, you won’t be able to take advantage of them without paying an early repayment charge for ending your mortgage deal early.
Once your fixed rate ends, you will move onto the lender’s standard variable rate (SVR), which is often significantly higher than the Bank of England’s base rate.
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What is the Bank of England base rate?
The base rate is set by the Bank of England as a benchmark for how much it costs to borrow money. It influences interest rates in the UK, which impacts mortgages, savings rates, and other borrowing. Lenders will set their SVR against the base rate, but it is often higher.
The SVR you’re on could also change regularly, meaning your monthly repayments will likely fluctuate. If you want to avoid this, you will need to remortgage to go onto a new fixed rate deal with all new interest rates.
If you’re thinking of waiting to take out a fixed rate in the hope that rates will come down, check out what our Deputy CEO, Ben Thompson, has to say:
“Markets expect rates to fall, but it may be that the UK economic recovery is sufficiently well-progressed that we may not get many cuts in the months ahead. So, I would say it's always best to lock in to the most suitable deal when your current one ends, and only take a gamble if you're equipped to potentially lose that bet."
Are fixed rate mortgages likely to go down?
While predicting the future of interest rates with accuracy is difficult, it’s widely believed that interest rates will start to go down towards the end of 2024, though perhaps not as dramatically as expected. Even with a base rate cut, forecasts suggest that mortgage rates will remain around the 4% mark, with some lower options available in exceptional circumstances. It’s unlikely we’ll see the historic lows of the 2010s.
We have a free mortgage finder tool that searches through thousands of different deals so you can get a sense of what’s currently available on the market.
What are the benefits of a fixed rate mortgage?
Predictable budget
With a fixed rate mortgage, your monthly payments stay the same throughout the introductory period, simplifying your budget and financial planning.
Flexibility for your goals
Choose a fixed term that aligns with your plans, whether you anticipate staying put for a few years or have a longer-term plan.
Interest rate protection
If interest rates rise during your fixed rate period, your payments won’t be affected, offering peace of mind and protection from unexpected increases.
What are the disadvantages of a fixed rate mortgage?
Missed opportunities
While fixed mortgage rates protect you from rising interest rates, they also prevent you from capitalising on potential decreases.
Early exit fees
Breaking a fixed rate mortgage before the term ends typically incurs an early repayment charge. This fee can be costly if you still have a large part of your mortgage left.
Standard variable rate surprises
If your fixed rate period ends before you’ve secured a new deal, your mortgage will automatically switch to the SVR. This rate is often higher than the fixed rate you’re used to, potentially leading to significant increases in your monthly payments.
Stay ahead of the curve with mortgage monitoring
Monitoring interest rates using a mortgage monitoring tool can help you capitalise on falling rates and potentially save you money on your mortgage. We have a mortgage monitoring service that checks the market daily for better deals that could work for you. The good news is that it's completely free!
You also don’t need to have a mortgage with us to take advantage. We’ll keep track of all your property details, send you updates when it's getting close to remortgaging time, and let you know if we’ve found a deal that could save you money. We even take early repayment charges into account so there’s no nasty surprises.
Give it a try!
Want to know if there's a better deal for you?
Let us monitor your current mortgage, giving you peace of mind you’re on the right deal, every month. This monitoring can be extra handy during a period in which interest rates change frequently.
- We’ll compare your mortgage against thousands of deals
- Send you a monthly home report
- We’ll notify when a better deal is available
The best part? You don’t need to pay anything.
Please note: This mortgage monitor does not constitute mortgage advice.
Are there alternatives to fixed mortgage rates?
If you’re concerned about paying early repayment charges, or are expecting to relocate within the next year or two, you have some options available to you.
You could start your mortgage off at a variable rate. This means that you could pay a different sum each month. It offers you more flexibility in terms of timings, and if the variable rate happens to drop, you could end up saving some money. That being said, you will likely pay more than you would with a fixed rate. On top of that, the extra interest you’re charged on an SVR doesn’t contribute to paying off the overall amount owed.
You can also potentially place your early repayment charge onto your new mortgage and spread the cost, but this will add to your overall amount due and compound interest will impact how much you pay over the life of your mortgage.
You should only consider this if it’s cost-effective for you. A mortgage adviser will be able to help work this out for you and offer unbiased advice to help you decide.
How mortgage advice can help you choose
With professional help, choosing the right mortgage for your circumstances isn’t complicated. Working with a mortgage adviser can give you expert insights and opportunities for favourable rates, since they have access to deals not found on the high street.
An adviser will offer personalised advice tailored to your specific needs and future goals. They can help you secure a predictable monthly payment, giving you peace of mind, and help ensure that you’re prepared for any adjustments after your initial period comes to an end.
Get expert mortgage advice today, even if you’re not quite ready to buy or remortgage just yet. An initial fee-free consultation can help you decide what’s going to work best for you and give you an outline of your next steps.
Frequently asked question
There are options available if you decide to move while still in a fixed rate period. You may be able to transfer your mortgage, otherwise known as porting. Not all lenders allow this, so check your contract.
You will be placed on your lender's standard variable rate (SVR) unless you remortgage. An SVR can fluctuate and tends to be higher than fixed rates, so your monthly mortgage payments will change from month to month.
A mortgage adviser will be able to give you a clear idea, but it is a personal decision. It all depends on your priorities and financial situation.
A big advantage to fixed mortgage rates is the certainty of your monthly payments, meaning you can plan and budget with confidence.
Your fixed rate can’t change while you’re in the product term, so even if interest rates are changing, yours will remain the same until the fixed rate expires.
Interest only mortgages, tracker mortgages, and offset mortgages are all options you can discuss with a mortgage adviser.
Choosing a two-year fix could give you immediate stability and an opportunity to see how the market looks later down the line. A five-year fix would give you longer term stability, but longer term mortgages can sometimes have higher interest rates.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
Related Articles
What's the difference between porting a mortgage and remortgaging?
Different types of mortgages explained
Does it matter if the market is going up or down?
References:
1. Forbes, 2024