What is a fixed-rate mortgage?
With a fixed-rate mortgage, your interest rate is guaranteed to stay the same for a set number of years. This can offer you peace of mind, as you’ll know exactly how much you’ll need to repay during this period.
Fixed rates differ from variable-rate mortgages where your monthly repayments can go up or down because of changes in the interest rate.
When we surveyed 4,225 homeowners in July, just under half (49%) were on fixed-rate deals.
What’s the best type of mortgage for you?
Which? Mortgage Advisers can explain your options and find you the best deal.
How long can I fix the interest rate for?
Most fixed-rate mortgage deals last between two and five years, but there are also some 10-year deals available.
The longer your fixed-rate deal lasts, the higher the interest rate tends to be. This is because it is harder for a lender to predict what will happen in the market over a longer period of time.
When your fixed-rate deal comes to an end, your lender will typically transfer you automatically on to its standard variable rate (SVR). An SVR mortgage is a type of variable-rate mortgage and your lender sets the interest rate, which can change by any amount and at any time.
At the end of June 2018, the average interest rate on a fixed-rate mortgage was 2.93%, while the SVR that you would move on to afterwards was 4.53% on average.
So, when your fixed deal comes to an end, you could end up paying a higher interest rate when you move on to your lender’s SVR.
However, you can remortgage to a new deal, either with your lender or another provider. For most mortgage customers, a new fixed-rate deal can offer better value than their lender’s SVR.
Find out more: finding the best mortgage deals
Are fixed-rate mortgages cheaper?
A fixed-rate mortgage can sometimes be more expensive than a variable-rate mortgage. This is because you will typically pay extra for the security of having a fixed interest rate.
But because of the current popularity of fixed-rate mortgages, the difference is often very small and many fixed-rate mortgages are currently cheaper than other mortgage types.
If you pay off the full amount of your mortgage, or switch to another mortgage, before your fixed-rate deal ends, you may have to pay an Early Repayment Charge (ERC).
These costs can be steep, so make sure you factor this in if you intend to move house or switch deals during your fixed period.
Some fixed-rate mortgages allow you to make overpayments (where you pay more than the monthly repayment) up to a certain limit, for example 10%, without imposing an ERC.
Pros of fixed-rate mortgages
- Your interest rate stays the same for a set period of time, so you have the certainty of paying the same rate each month for the duration of your deal.
- You won’t be affected by any rise in interest rates in the wider market (eg if the Bank of England base rate increased) for the duration of your fixed period.
- Fixed-rate mortgages can be cheap when interest rates are low.
- Although interest rates on 10-year deals can be higher than those for shorter fixed periods, you may end up paying less in the long run. We recommend that you talk to a mortgage adviser if you’re unsure.
Cons of fixed-rate mortgages
- If interest rates fall elsewhere in the market you could end up paying more than you would have done with a variable-rate mortgage, such as a tracker.
- If you already have a mortgage, switching to a new deal isn't always cost-effective, even if there are lower rates available than what you're currently paying. Fixed-rate mortgages can carry sizeable arrangement fees, plus you'd need to factor in valuation and solicitors' fees and any early repayment charges on your current mortgage.
- If you're planning on moving house soon, you may wish to avoid tying yourself into a long-term fixed-rate mortgage unless it's portable, or you could face steep exit fees. Portability is an option but is at the lender's discretion, and whether they will agree depends on their criteria at the time you apply.
Should I fix my mortgage deal?
Fixed-rate mortgages can be appealing when interest rates are low and if you want to protect yourself from future rate increases - and with the Bank of England base rate at 0.5% or less since March 2009, it could be a good time to fix.
If you were to look for a fixed-rate deal after an increase in the base rate, it’s not guaranteed that the best offers will still be available.
Research by Which? found that 135 fixed-rate mortgage deals were withdrawn in the weeks after the November 2017 base rate increase, including many of the most attractive low-rate deals.
A fixed-rate mortgage can also be suitable if you are on a tight budget and want to know exactly how much your mortgage repayments will be each month.
But think carefully about how long you plan to live in the same home, and whether your income or circumstances could change. Early repayment charges and exit can make leaving a fixed deal expensive.
If you foresee staying in your home for the foreseeable future, a long-term fix could be for you - but if you have life changes on the horizon, it may be wise to consider a shorter-term fix or a more flexible variable-rate loan.