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Is a three-year fixed-rate mortgage better for first-time buyers?
While mortgages offering a three-year fixed rate for first-time buyers remain rare, a flurry has hit the market this month. But is this mid-length term worth going for over more common two-year or five-year options?
Aldermore has introduced a range of three-year fixed-rate mortgage options across its no-fee deals for those with a 5%, 10% or 15% deposit. The lender has also lowered the early repayment charges on its three-year and five-year fixed-rate mortgages, offering borrowers more flexibility if their plans change.
Meanwhile, West Bromwich Building Society has added a three-year fixed rate to its 95% loan-to-value (LTV) range priced at 3.14%.
We take a look at how common three-year deals are and what the benefits are of this term compared with a shorter two-year or longer-lasting five-year fixed-rate.
Two- vs three- vs five-year mortgages
When it comes to fixed-rate mortgages for first-time buyers, two-year deals are the most common term offered by lenders.
Which? found there were 200 two-year fixed-rate deals to choose from on an 85% LTV, and 125 at 95% LTV.
It's a similar story for longer-lasting five-year terms, with 179 available at 85% LTV, and 113 on offer at 95% LTV.
Three-year fixed-rate deals in comparison are relatively rare - there are just 52 available at 85% LTV and 47 at 95% LTV.
Typically the longer you fix your mortgage, the more a lender will charge.
However, Which? analysis of Moneyfacts data shows that isn't always true. On average, three-year deals are cheaper than two-years deals at an 85% LTV, and the same price at a 90% LTV.
The best three-year fixed-rate mortgages
Below we've picked out the lowest-rate three-year fixed-rate mortgages on the market right now for first-time buyers on a 85%, 90% and 95% LTV.
| LTV | Lender | Initial rate | Deal | Fee | Revert rate | APRC |
| 85% | Halifax Intermediaries | 1.86% | Fixed to 30/06/2022 | £999 | 4.24% | 3.8% |
| 90% | Barclays | 2.09% | Fixed to 31/07/2022 | £999 | 4.24% | 3.8% |
| 95% | Barclays | 2.75% | Fixed to 31/07/2022 | £0 | 4.24% | 3.9% |
Source: Moneyfacts. 8 May 2019.
How long should you fix for?
A fixed-rate mortgage may be a good idea if you want certainty that your monthly interest repayments won't suddenly skyrocket.
However, it can be tricky to decide how long to fix your rate.
The mortgage term you choose will largely depend on what you can afford to pay, your future plans and what you think will happen in the economy.
What can you afford?
Typically, two-year fixed rates are the cheapest option - fixing for longer may mean you pay more each month.
But this isn't always the case, so it's worth shopping around and finding the cheapest deal for each term.
You can check the cost using a repayment calculator to see what your options realistically are.
Read more: finding the best mortgage deals
What are your future plans?
Your future plans are also important when determining the length of your deal. Do you plan to stay in the same home for three or five years? Or will you need to move after two?
With longer fixes, you should watch out for early repayment charges. This is a percentage fee charged on your outstanding loan if you choose to repay your mortgage before the deal ends - for example, because you're selling up and moving.
If you're not sure of your plans, you should potentially stick to a shorter deal or make sure the mortgage you are going for is portable, so you can bring it with you if you decide to move.
Find out more:porting a mortgage
Do you want to save on remortgaging?
Fixing for longer means you can save on the cost of remortgaging each time your deal comes to an end.
Remortgaging is likely to involve you paying product, valuation and legal fees that can cost thousands.
By always opting for a two-year deal, you would need to remortgage five times in 10 years; with three-year deals, you only need to do it three times and with a five-year term you would only need to remortgage twice.
Find out more:remortgaging explained
What do you think will happen to the economy?
A longer-term fix could also help guard you against adverse changes in the economy.
If the Bank of England decides to hike the base rate, for example, fixed-rate mortgages are likely to become more expensive.
That said, with ongoing Brexit uncertainty, you might not what to fix for too long, as rates could fall further and you end up paying more than you need to.
Find out more:Bank of England base rate and your mortgage
