With the Bank of England’s base rate jumping from 0.1% to 5.0% in the space of a few years, mortgage rates aren’t what they used to be. Mortgage rates across the country are based on this base rate, so when that increases, they do too.
This has made getting a mortgage considerably more expensive than before. Naturally, homeowners and prospective homeowners alike are more cautious in how they go about fixing their mortgage. Deciding whether to fix for 2, 3, or 5 years can feel impossible, so we’ve written this guide to help you feel more informed and confident in your decision.
Why are interest rates so high?
Firstly, let’s look at why these interest rates are so high in the first place. The Bank of England raised interest rates in December of 2021 to help with the rising inflation. Three years on in 2024, inflation has been falling and is now just above the Bank of England’s target of 2%. It’s therefore possible that the base rate will be cut again in November.
Mortgage rates began to slowly decline since August of this year, with the average 2-year fixed rate mortgage standing at 5.40% and the average 5-year fixed rate standing at 5.07%.
What should I do if my fixed-rate mortgage is ending in 2024?
If you’re on a fixed-rate mortgage that’s due to end this year, you have a number of options.
You could simply let it automatically move on to your lender’s Standard Variable Rate (SVR) as your deal ends, but this could mean higher repayments for you because SVRs are often higher than fixed-rate deals.
An alternative would be to remortgage with your current provider (this is called a product transfer or a product switch). Or you could remortgage to a new deal with a new provider.
If you’re worried about the new repayments, you could move to a part-and-part or an interest-only deal to help you reduce them in the short term. And if you’re struggling to remortgage because of your affordability, you could think about adding a relative or loved one onto your mortgage as a guarantor through an Income Boost remortgage.
How long should I fix my mortgage for in 2025?
There are a couple of things to consider here. Firstly, the average 2-year fixed rate is currently at 5.40%. The average 5-year fixed rate is 5.07%. These rates are lower than they have been in the last few years and already, the 5-year fixed rate is coming out a little cheaper than the 2-year. A 2-year fixed rate could protect you from short-term rate hikes and keep you going long enough to be able to remortgage at a lower rate – but there’s no guarantee that the rates will actually drop.
Secondly, think about how long you plan on living in this property. If you think you’ll be living there for a long time, fixing your mortgage could be a good idea. It would mean you wouldn’t have to worry about remortgaging for a while, nor would you have to think about paying fees to transfer the mortgage over to a new property if you were to move.
When juggling these options, don’t forget to consider your own attitude to risk. Feeling uncomfortable and stressed by your financial decisions isn’t worth the decision at all.
What is the average fixed mortgage interest rate?
As of October 2024, the average 2-year fixed mortgage rate is 5.40%, and the average 5-year fixed mortgage rate is 5.07%. However, with a large deposit you could secure a mortgage rate of under 4%.
But don’t forget that these are averages and the rate you get can depend on your eligibility, deposit size, and equity.
Should I fix my mortgage for 2 years or 5 years?
Whether you decide to fix your mortgage for 2 or 5 years depends on your plans and your individual situation. A 2-year fixed mortgage gives you short-term stability and certainty, and it’s probably the right way to go if you don’t plan on staying in your home for more than a few years. Another bonus would be if the rates dropped over the next two years, because you could then move on to a new, lower rate once your deal ends.
On the other hand, fixing for 5 years would give you more long-term stability and certainty. If this is your forever home, or you at least plan on staying there for a long time, this option is likely to suit you better. But be aware that things can change in 5 years and if the rates were to go down before the end of your deal, you would still be paying the same rates as when you fixed which could mean you’re paying more interest in comparison.
“What I would always say to customers is that there is always uncertainty in an economy,” says The Mortgage Hut founder Chris Schutrups, “so if you’re very sensitive to pricing it’s always worth going for some type of fixed period. It may be 2 years, but if you’re willing to fix for longer and willing to take the risk of higher or lower prices for the sake of some certainty, longer fixed rates are an option.”
“A couple of years ago we’d have said it was impossible for interest rates to be at this level, but then a shock to the economy makes them fly up. The good news is that customers coming off a 2-year fixed rate at the moment are still seeing a reduction in what they’re paying and hopefully as time goes on, customers coming off a longer-term fixed rate are seeing less of a jump, less of a spike in their payments and a bit more stability.”
At the Mortgage Hut, we help hundreds and thousands of hopeful homebuyers get mortgages by helping them explore the options available to them. By providing a little clarity, we can help you make an informed decision – one that benefits you both in the short term and the long term. Speak to a member of our team today to go through your options.
FAQs
Should I get a 10-year fixed mortgage?
Fixing for 10 years is a way to get even more stability and peace of mind than fixing for 5 or even 2 years, but the interest rates on a 10-year fixed mortgage are often a bit higher. But if you are confident you’ll be staying in your home for the next decade, and not so confident about the road ahead, this could give you some stability and certainty.
Don’t forget that if interest rates fall after you fix, you might end up paying more interest than if you had fixed for a shorter term or even opted for a variable rate. And if you decide to leave early, you could face paying early repayment charges.
Should I fix my mortgage in 2024?
There are pros and cons to fixing your mortgage. On the one hand, you’ll have protection against interest rate increases and changing criteria and circumstances, and you could save money on fees.
On the other hand, your monthly payments could be higher, you might have to pay a penalty if you decide to move, or ERCs if you want to pay your mortgage off early.
Is a 3-year fixed mortgage a good idea?
Not convinced by a 2-year or a 5-year fixed mortgage? A 3-year fixed mortgage could offer a nice balance between the two. But it’s worth noting that the average interest rate for a 3-year fixed is often 0.02 percentage points higher than the average 5-year and there are less 3-year fixed mortgage deal products available.
