We use cookies to allow us and selected partners to improve your experience and our advertising. By continuing to browse you consent to our use of cookies. You can understand more and change your cookies preferences here.

Base rate hike: are fixed rate mortgages the best deal?

Even fixed-rate mortgage offers are getting more expensive

Base rate hike: are fixed rate mortgages the best deal?

A week on from the Bank of England raising its base rate, mortgages have become more expensive across the board – but is it still possible to get a cheap fixed rate deal?

After last week’s decision by the Bank of England to raise the base rate to 0.5%, lenders hiked up their standard variable rates (SVRs). But fixed-rate mortgage deals have also gotten more expensive – two-year fix offers, for example, have seen the biggest monthly rise in eight years.

Is this the start of major hikes or a temporary adjustment? Here, we look beyond the headlines and explain how you can still find a good mortgage deal in the current climate.


Fixed-rate deals getting more expensive

According to Moneyfacts, the cost of two-year and five-year fixed-rate deals increased by 0.12% this month – and in the case of two-year fixes, that’s the highest monthly rise since August 2009.

While it might seem that mortgage lenders are rushing to pass on extra costs to buyers, this trend has been bubbling away for some time.

Speculation over a possible base rate rise tends to push up swap rates – the rates banks charge when lending to one another – and thus the cost of fixed mortgages. Prices have been creeping up as early as the start of October.

Subscribe to Which? Money Weekly

A free newsletter from Which? Money Compare offering unmissable news, deals and money-saving tips delivered to your inbox every week.

Register here

Have I missed the boat for a cheap deal?

Yes and no. While such a rapid increase is big news, it comes after six months of cuts, which brought mortgage rates down to historically cheap levels.

Indeed, the average rate on a fixed-rate deal is now 2.33% – well up on the 2.21% recorded last month, but only a little more expensive than the 2.30% seen in May 2017.

But with Moneyfacts data showing around half of lenders have increased the cost of mortgages since October, this could be the start of more price hikes over coming months.

Longer-term fixes protect against rate rises

Market observers suggest its likely the base rate will continue rising over the next couple of years – so some home movers are looking to tie themselves into longer fixed-rate deals, which provide security over repayments.

The recent increase in the price of five-year deals to 2.88% means they’re now back to the levels seen in June, and remain slightly cheaper than in January (2.92%).

While rates are on their way up, competition between lenders has been fierce in the five-year market this year, meaning there are a number of affordable deals on offer.

Some demand remains for variable deals

High street lenders have been quick to add the base rate increase on to their SVRs, meaning it’s even more important to remortgage before your fixed or discount term ends.

While tracker and discount mortgages are now less attractive than before the base rate decision, some buyers are seeking out deals with a longer-term longer discount period to gain protection against future hikes.

Indeed, Yorkshire Building Society says 6% of its customers in the first week of November chose a discounted SVR deal, up from 3% in October.

Time to assess your options?

David Blake of Which? Mortgage Advisers says: ‘Fixed-rates have increased slightly in light of the recent interest rate rise, but for the majority, still represent fantastic value for money and the most favourable option’.

‘There are even some unique products on the market that guard against rates rises but have no early repayment charges, leaving you free to reassess.’

‘It’s a good idea to look at this now while rates are still low. The government’s Funding for Lending scheme is due to end early next year which has the potential to increase the cost of mortgages quite substantially.’

The Funding for Lending scheme launched by the Bank of England in 2012 (and extended in 2015) offers low cost-funding to banks to support them in increasing the amount they can lend to businesses and households.

Back to top
Back to top