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Join Which? MoneyFixed-rate mortgages: should you consider a three-year deal?
Find out whether you you could be missing out on cheap rates by sticking to two
and five-year mortgage terms
When it comes to getting a fixed mortgage, two-year and five-year terms are the most common options – but could it pay to go down the middle and opt for a lesser-used three-year fix?
Current rates show there are competitive deals to be had, although the average interest rate for three-year fixes is 0.02 percentage points more than the average five-year deal.
Here, Which? analyses how the three-year fixes compare, looks at the best deals on the market, and delves into whether the 36-month option is a shrewd move.
How many three-year mortgage deals are available?
According to data from Moneyfacts, there are currently 326 three-year mortgage deals available – accounting for around 12% of all products on offer.
That's a much smaller share than two-year and five-year fixes, which are by far the most common mortgage terms.
While the majority of the UK's major mortgage lenders offer three-year terms, they're not available everywhere:
| Lender | Does it offer three-year fixed mortgages? |
|---|---|
| Barclays | No |
| Coventry Building Society | Yes |
| Halifax | Yes |
| HSBC | Yes |
| Lloyds Bank | No |
| Nationwide Building Society | Yes |
| NatWest | No |
Source: Moneyfacts
- Find out more: fixed-rate mortgages
Best three-year mortgage rates
The average rate across three-year deals is currently 5.07%, but it's possible to find a much cheaper deal if you have a larger deposit.
The cheapest three-year mortgage on the market is from Coventry Building Society, with a 4.11% interest rate, according to Moneyfacts data. However, this is only at 65% loan-to-value (LTV), so you'll need a 35% deposit to qualify.
You'll pay more if you have a smaller 5% or 10% deposit. However, borrowers could save a good chunk of money on interest if they can afford to stretch their budget to cover 10% of their property's value.
Using Moneyfacts data, we found that the lowest interest rate for a 5% deposit is 5.2% (Coventry Building Society), while the best for a 10% deposit is 4.69% (HSBC).
The table below shows the cheapest three-year fixed deals currently on offer for varying LTV amounts:
| Loan-to-value (LTV) | Provider | Initial rate | Revert rate | Fees |
|---|---|---|---|---|
| 60% | Santander | 4.21% | 7.5% | £999 |
| 65% | Coventry Building Society | 4.11% | 6.74% | £999 |
| 75% | Coventry Building Society | 4.18% | 6.74% | £999 |
| 85% | HSBC | 4.49% | 6.99% | £999 |
| 90% | HSBC | 4.69% | 6.99% | £999 |
| 95% | Coventry Building Society | 5.2% | 6.74% | £999 |
Source: Moneyfacts
- Find out more: how much deposit do you need for a mortgage?
Three-year versus two-year and five-year mortgages
Looking at how three-year mortgages compare, this month's average rate of 5.07% is marginally more than the five-year average of 5.05%, but quite a lot less than the two-year average of 5.35%.
Three-year fixes haven't always been so competitive. The graph below looks at how three-year fixes compare with two-year and five-year fixes over the past 12 months.
The figures – sourced from Moneyfacts – show that between August and November last year the average three-year fix was more expensive than average two-year and five-year deals. Since December 2022, average three-year rates have fallen at a much quicker rate since January, meaning they're now sitting below two-year deals and almost level with five-year averages.
If this trend continues, a three-year deal could be a far cheaper option than the more common mortgage terms.
How do best rates compare?
While the difference between average rates for five-year and three-year fixes is very small, the gap widens when you single out the best deals on the market at varying LTVs.
Generally, it is expected that a longer term means a lower interest rate. However, as seen in the table below, there are some anomalies.
For instance, those looking to get a mortgage at 60% or 75% LTV could save money by fixing for two years rather than three.
| Loan-to-value (LTV) | Best two-year interest rate | Best three-year interest rate | Best five-year interest rate |
|---|---|---|---|
| 60% | Barclays – 4.08% | Santander – 4.21% | Barclays – 3.84% |
| 65% | Coventry Building Society – 4.21% | Coventry Building Society – 4.11% | Coventry Building Society – 4.01% |
| 75% | Barclays – 4.13% | Coventry Building Society – 4.18% | Yorkshire Building Society – 3.92% |
| 85% | Coventry Building Society – 4.57% | HSBC – 4.49% | HSBC – 4.21% |
| 90% | Virgin Money – 4.75% | HSBC – 4.69% | HSBC – 4.41% |
| 95% | Halifax – 5.29% | Coventry Building Society – 5.2% | Halifax – 4.88% |
Source: Moneyfacts
- Find out more: best mortgage rates for home movers and first-time buyers
Should I get a three-year mortgage?
If you're not convinced by two-year and five-year mortgage options, a three-year fix could be a good compromise.
David Hollingworth, of L&C Mortgages, said: 'It can offer a nice balance for those that feel a tie-in for five years could be a little long for their needs, but that two years will come round all too quickly.'
Due to the very minimal difference between the best two and three-year rates, Hollingworth says the latter should be considered.
'It may not take the same market share as other deals, but the three-year term is certainly something that should be considered – especially when it carries little or no premium for the additional comfort of an extra year of peace of mind,' he said.
The 11 rises to the Bank of England's base rate in the space of 16 months have had a significant impact on mortgage rates. So, it's easy to see why homebuyers and those looking to remortgage would seek solace in a longer-term fix.
However, if predictions of soon-to-be-reduced interest rates come to fruition, a shorter-term fix could be appealing as borrowers could potentially get a better deal in two years' time.
- Find out more: how long should you fix for?
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Listen nowWhat other fixed-term periods are available?
In recent years, one, two, three, five, seven, 10 and 15-year terms have been available, but one-year and 15-year fixes are no longer on the market.
Seven-year fix
Seven-year terms are now very rare, however, there are currently three options available for homeowners wanting to branch out further than a traditional five-year term.
Virgin Money, Newcastle Building Society and Yorkshire Building Society are the only lenders offering a seven-year fix. The cheapest rate comes from Virgin Money at 4.14%. You'll need a deposit of 25% to qualify, and there are no additional fees.
10-year fix
The longest fixed term you can currently take out is for 10 years.
Once a fairly rare product, there are currently 123 deals available, with many of the major lenders offering the decade-long term. Halifax provides the lowest interest rate of 3.98%, for which you'll need a 40% deposit.
For low deposits, 10-year mortgages are less common, but Nationwide Building Society has the cheapest option, charging 4.84% for 90% LTV.
- Find out more: how to find the best mortgage deals
