What is a fixed-rate mortgage?
A fixed-rate mortgage is a mortgage where your interest rate is guaranteed to stay the same for a set period of time.
This can offer peace of mind because, unlike a variable-rate mortgage (such as a tracker), you’ll know exactly how much you’ll need to repay each month during this period.
There are far more fixed-rate mortgages available than any other type of deal - in fact, when we checked in February 2019, 85% of the mortgages listed on comparison site Moneyfacts had fixed rates.
They're popular with homeowners, too: over half (55%) of the 3,500 people Which? surveyed in June 2018 told us they had fixed-rate mortgages.
How long can you fix the interest rate for?
Fixed-rate deals can last between one and 10 years. You can currently fix your rate for one, two, three, five, seven or 10 years.
One-year fixed-rate mortgages are much less common, and tend to only be available for borrowers with specific requirements, such as those buying with a Help to Buy equity loan or wanting to borrow a large amount.
Generally speaking, the longer your fixed-rate deal lasts, the higher the interest rate will be. This is because it is harder for a lender to predict what will happen in the market over a longer period of time - you're essentially paying for the security of knowing that your rate won't go up no matter what happens.
|Initial deal period||Average interest rate||Number of deals|
Correct as of 14 February 2019. Source: Moneyfacts.
a Does not include deals with a 0% initial interest rate for the first three months
Should you get a two-year or five-year fixed-rate mortgage?
As the table above shows, most fixed-rate mortgages are either two- or five-year deals.
While the prospect of locking into a relatively low rate for as long as five years can be attractive, you'll need to think about whether you really want to commit to a deal for that long.
If you need to pay off your mortgage while you're in a fixed-rate period, for example if you want to move house or remortgage, it can be very expensive as you’ll generally have to pay an early repayment charge.
Most early repayment charges on fixed-rate mortgages will cost you a percentage of the amount you’re repaying, which can end up being thousands of pounds. So, if you’re likely to be moving house within the next five years, you might want to consider a shorter-term fixed-rate deal or a five-year product with no (or low) early repayment charges instead.
- Find out more: two-year vs. five-year fixed-rate mortgages
Fixed vs variable-rate mortgages
Fixed rates differ from variable-rate mortgages, where your monthly repayments can go up or down because of changes in the interest rate.
However, the current popularity of fixed-rate mortgages has encouraged greater competition between lenders, meaning that you might actually find some fixed-rate deals that are cheaper than other mortgage types.
Which? Mortgage Advisers will analyse the fees and rates of every mortgage on the market to find the cheapest one for you.
What happens when the fixed period ends?
When your fixed-rate period comes to an end, your lender will transfer you onto a standard-variable-rate (SVR) mortgage. Every lender sets its own SVR and this can change by any amount at any time.
In February 2019, the average interest rate on a two-year fixed-rate mortgage was 2.78%, while the average SVR was 4.9% - meaning that your repayments on an SVR mortgage could be significantly more expensive.
For this reason it's important to consider remortgaging to a new deal, either with your lender or another provider, before you get transferred onto the SVR. You can arrange this up to six months before your fixed period is due to end.
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 increases) 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 how long to fix for.
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.
- Early repayment charges can be steep on fixed-rate mortgages, making remortgaging to a cheaper deal more expensive than it's worth - especially after also factoring in arrangement fees, valuation and solicitors' fees.
- You may wish to avoid tying yourself into a long-term fixed-rate mortgage if you're planning on moving house within the next few years, again due to early repayment charges. Porting your mortgage is sometimes an option but it might end up costing you more than if you were to switch to a new deal.
Should you get a fixed-rate mortgage?
A fixed-rate mortgage could be suitable if you're on a tight budget and want to know exactly how much your mortgage repayments will be each month. But before applying for one you should think carefully about how long you plan to live in the same home, and whether your income or circumstances could change.
Most fixed-rate mortgages allow you to make overpayments (where you pay more than the regular monthly amount) up to a certain limit, often 10% per year, without imposing any penalties. But if you pay off the full amount of your mortgage or switch to another deal before your fixed period ends, you may have to pay an early repayment charge, which can be steep.
If you plan to stay in the same property for the foreseeable future, a longer-term fixed-rate mortgage 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 variable-rate loan.
Changes in the Bank of England base rate
Fixed-rate mortgages can also be appealing when interest rates are low and you want to protect yourself from future rate increases. With the Bank of England base rate currently at 0.75%, 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 would 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.
But after the base rate increase in August 2018 from 0.5% to 0.75%, the average rate for two-year fixed-rate mortgages actually decreased from 2.53% in September 2018 to 2.49% in October 2018, according to Moneyfacts.