Fixed-rate mortgages

Whether you’re buying your first home, moving house or remortgaging, our guide will help you decide whether a fixed-rate mortgage is right for you. 

Whether you’re buying your first home, moving house or remortgaging, our guide will help you decide whether a fixed-rate mortgage is right for you. 

Daniel Evans
Head of Mortgages
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Posted 10 DECEMBER 2019 Last Updated 25 NOVEMBER 2020

What is a fixed-rate mortgage? 

A fixed-rate mortgage has an interest rate that remains the same for a set period – typically up to five years, but sometimes for up to 15 years. This means you’ll know exactly how much your monthly repayments will cost, making it easier to draw up a budget.

At the end of the fixed-rate period your interest rate typically returns to the lender’s standard variable rate (SVR). Variable rates tend to be higher than fixed rates, which is why it’s a good idea to arrange a new deal for when your fixed-rate deal comes to an end.

What is the difference between fixed and variable rate mortgages?

With a variable rate mortgage, the interest rate can fluctuate. With fixed rates, the interest rate is fixed for a set period of time and won’t change during that period.

Types of variable mortgages include: 

  • Tracker mortgages: These deals move in line with the Bank of England base rate. The actual rate is usually around 1% higher than the current base rate.
  • Discounted rate mortgages: Rather than the Bank of England base rate, these are linked to the lender’s standard variable rate for a set period, usually one to five years.

What are the advantages of a fixed rate mortgage? 

  • With a fixed-rate mortgage, you’ll know what your outgoings will be every month, which allows you to budget.  
  • You’ll be protected from interest rate rises if the Bank of England raises the base rate during the period of your mortgage.  
  • Fixed-rate mortgages can be very good value when interest rates are low.  

What are the disadvantages of a fixed rate mortgage? 

  • If interest rates fall, you could end up paying more than if you had a variable rate mortgage because your payments are fixed.  
  • Early repayment charges can be high, making it more expensive to remortgage to a cheaper deal if one becomes available – especially when you factor in remortgaging costs. 
  • If you want to move sooner than the end of the fixed term, you may end up paying early repayment charges or porting your mortgage, when you could have otherwise opted for a new, cheaper deal. 

What to watch out for with a fixed rate mortgage 

  • Fixed-rate mortgages can often have higher arrangement fees than other deals - typically between £1,000 and £2,000. However, the  Annual Percentage Rate of Charge (APRC)  that you’ll see quoted for the deal takes into account these fees. The APRC shows the total cost of your mortgage, so you can see exactly how much you’ll be paying over the term of your mortgage.

  • Sometimes a mortgage rate with a higher interest rate, but lower fees, could work out cheaper – particularly if you’re likely to change mortgages again at the end of a short fixed term, or if the amount of borrowing is relatively low. Check what arrangement fees (the fees you pay for a lender to establish your mortgage) and other costs you might have to pay.

  • The longer you fix your mortgage for, the less impact any fees would have on the total you pay. But the longer you fix it for, the higher the interest rate is likely to be.

Should I choose a two, five or ten-year fixed rate mortgage?

The mortgage term you choose depends on your own personal circumstances and needs. Typically, the longer your rate is fixed for, the higher your interest rate will be. That’s because it’s harder for a mortgage provider to know what will happen to lending rates over a longer period of time. You end up paying a little more for the certainty of knowing that your rate will not increase, whatever happens during that time. This can be good for people who need to know what their outgoings will be.

One of the things you need to think about when deciding how long to fix your rate for, is whether you’re likely to need to move home or remortgage. For example, if you get a five-year fixed rate and move home after three years, you’re likely to have to pay an early repayment charge.

That can be quite expensive. What you have to pay will depend on the deal and the lender, but it could be thousands of pounds. Some lenders may charge up to 5% of the original loan. Others charge a tiered amount depending on the number of years into the fixed period you’ve gone.

If you think it’s likely you’ll move within the next five years, then choosing a shorter-term deal or making sure you select a lender with low early repayment charges, might be sensible.

If you’re in your ‘forever’ home, then a longer deal might benefit you more, but you’ll have to do the sums.

Also, with longer fixed periods you’ll save yourself the hassle of having to go through a remortgage after only a couple of years.

Remember, to apply for any mortgage you must be over 18 and bear in mind that taking on any mortgage is a significant financial undertaking. If you’re successful in applying, you’ll have to pay monthly mortgage payments, so only apply if you’re certain you’ll be able to meet the payments. Your home could be repossessed if you fail to maintain your mortgage repayments.

What are the advantages of a shorter fixed-term mortgage?

A one or two-year fixed-term mortgage could offer the following benefits:

  • They tend to be cheaper because there’s less risk for the lender
  • They can be handy if you intend to move home in the next few years. If, for example, you plan to start a family and move to a bigger home, a shorter fixed-rate mortgage would give you the freedom to move when the term ends and avoid paying a hefty early repayment charge.
  • If interest rates fall, you won’t have long to wait until the end of the term to switch to a cheaper deal
  • If you do decide to pay off your mortgage early, typically the early repayment charges are less than for longer-term fixed-rate mortgages

What are the advantages of a longer fixed-term mortgage?

Being locked in for longer, over five or 10 years for example, can also have advantages, depending on your situation:

  • If interest rates go up, you’ll be protected from price hikes on your monthly repayments – they’ll stay the same for the duration of your fixed-term
  • You’ll avoid paying upfront fees every year or so. If you’re not intending to move for a good few years, a longer fixed-term mortgage could be a better option – you’ll be saving on fees, so it could work out cheaper in the long run

The larger your deposit, the better fixed-rate interest deals you could get. That’s because the risk to the lender of not getting their money back is reduced. If you have a deposit of 40%, for example, you’re likely to be eligible for the cheapest mortgage deals. But if you’re a first-time buyer, your deposit will probably be between 5% and 10%, which means your interest rate will typically be much higher than if you put down a larger deposit. 
To understand how much deposit you’ll need, look at the maximum loan-to-value ratio (LTV) a lender is prepared to offer you.  
A loan-to-value ratio is the amount you’re borrowing on a mortgage compared to the overall cost of a property. Often, the lower the LTV, the lower the rate of interest you might be charged. 

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What happens when the fixed period ends on your mortgage? 

When the fixed period is up, your mortgage will switch to the standard variable rate, which is likely to be higher than the fixed rate. Your monthly outgoings will very likely increase.

It’s a good idea to start looking around six months before the fixed rate comes to an end, so you can decide what you want to do. You’ll need to look at your personal circumstances and, when and if you might want to move home, whether to repay or overpay your mortgage.

You could consider remortgaging and getting another fixed-rate deal. You’ll need to check what, if any, charges you might have to pay to change mortgages from your existing provider to any new potential provider.

You could also get a new deal with your existing lender. This is likely to be lower than their SVR and is often a much simpler process than changing lender, as they already understand your risk as an existing customer. Also, you might be able to get a better deal as you’ll have paid off more of your mortgage, so your loan-to-value (LTV) rate may have changed.
It can be worth discussing your options with a mortgage adviser.

When is a good time to fix? 

Most people will ‘fix’ when they move home or their old deal runs out. But with mortgage rates having been low for a while, some people have been happy to stay on a standard variable deal. The right time to switch to a fixed rate might be:

  • When a fixed-rate term is ending and you want to know what your outgoings will be
  • If you’re on a variable rate and the Bank of England has indicated that interest rates are likely to rise
  • After a decrease in interest rates and no further cuts in rates are likely, according to the Bank of England
  • When competition between mortgage providers has prompted lower rates

If you’re not sure if now is a good time to fix, it makes sense to talk to a mortgage adviser. They’ll also be tracking the market and should know whether more deals are coming to an end or moving up or down.

Can I pay off my fixed-rate mortgage before it ends?  

Yes, you could pay off your fixed-rate mortgage before it ends. But you’re likely to have to pay an early repayment charge, which could run into thousands of pounds. If you’re considering paying off your mortgage, you should check what the early repayment charge is, to see if it’s worth doing. 

Can I overpay my fixed-rate mortgage? 

You can usually overpay your fixed-rate mortgage. But some mortgage providers will only allow you to overpay by a set amount before they enforce early repayment charges. You’ll need to check the details of your deal to see what your options are. A typical amount that you could overpay with most lenders is 10% of the amount owed. You may be charged on the amount you overpay above the limit in the mortgage agreement.

Will applying for a fixed-rate mortgage affect my credit rating?

Yes, it can affect your credit rating. Every time you apply for a mortgage, the application will appear on your credit file. Potential lenders will see this when they do a credit check. Too many applications might raise a red flag and could mean you’re refused a mortgage.

Before applying for a fixed-rate mortgage, check your credit file to make sure there aren’t any mistakes – even a misspelled word could affect your application. You can check your credit file for free with Experian, Equifax or TransUnion credit reference agencies.

Find out more about mortgage eligibility.

What do I need to compare mortgages? 

To start comparing, you need to provide a few details including:

  • how much you want to borrow
  • how long you want to fix your mortgage rate for
  • whether you’re looking for a residential or buy-to-let mortgage
  • whether you’re a first-time buyer
  • the amount of deposit you can provide

Compare fixed rate mortgages  

Comparing fixed-rate mortgages is easy and straightforward, as we do all the hard work for you. 
Find the right deal for you by starting with a mortgage comparison
You can also talk to a mortgage adviser who can check your eligibility for more than 80 lenders across the market, including fixed rate and variable mortgages.

Tobi Owens

From the Mortgages team 

What our expert says… 

“If you’re planning a move or know your circumstances may change in the near future, a short-term fix may offer greater flexibility. But if you know you aren’t going anywhere and you want the stability of a fixed rate, then a longer fix could be very worthwhile.” 

Fixed-rate mortgage providers

We compare deals from leading mortgage providers and make it easy for you to look for and compare the right mortgage for you. We also work with the UK’s leading mortgage advisers, London & Country, who can review thousands of mortgage deals across the market to get the best deal for you.

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