Should You Go For a 2, 3 or 5 Year Fixed Mortgage?

A fixed rate mortgage is the most popular type of home loan in the UK, providing certainty and stability around monthly repayments. But how long should you fix your mortgage for? Typical options are 2, 3 or 5-year fixes, but some lenders will let you lock in for 10 years or longer.

In this article we’ll look at the advantages and disadvantages of short and long term fixes, what factors to consider when making your decision, and why speaking to a broker is the best route to the right deal for your circumstances.

How long should you fix your mortgage for?

There is no straight answer that will apply to everyone, but below we have outlined when you should opt for a longer fixed rate mortgage over a shorter one to help you decide.

A longer fix might be the answer if…

• You prefer consistency over flexibility
• Interest rates are expected to remain high indefinitely
• You are planning to stay in your home long term
• You have no plans to pay more than the minimum on your mortgage each month

A short fixed rate mortgage might be a better alternative if…

• You want the flexibility to make changes to your mortgage
• Interest rates are projected to fall in the near future
• You’re planning to move house in the next few years
• You want the option to make overpayments without penalty

Benefits of a longer term fix

The advantages of long-term fixed-rate mortgages are as follows…

• Peace of mind:  If you choose a ten year fixed rate, you know exactly how much your repayments will be for the next decade. And it will protect you from interest rate rises for the entire period.
• Consistency: If rates are predicted to rise, you can rest assured that your monthly mortgage payment won’t be affected. Conversely, you won’t benefit from interest rate reductions. But if budgeting security is important to you, a long term fix might be worth considering.
• Potential savings: You can also save on your overall borrowing costs. If you were to take out five two year fixed rates over a ten year period, for instance, you would need to pay five arrangement fees over that period. This could cost in the region £5,000 to £8,000. And there might be other costs associated with each remortgage too. With a ten year fixed rate, you would only pay one arrangement fee over the same time.
• Security: It’s not just interest rate rises and fees that you guard against with a long term fix. You won’t need to worry about changes to eligibility criteria either. This can be particularly appealing to borrowers with a fluctuating income who fear a period of downturn might coincide with remortgaging.

Longer term fixed rates tend to be preferred by people who are moving into their ‘forever home’ or remortgaging after having completed any major refurbishments or repairs. Typically, this is because they value payment stability over mortgage flexibility and don’t intend to release equity from their home.

But don’t necessarily rule out a long term fix just because you think you might want to move in a few years. Some longer term fixed rates can be ported, so you can effectively move the deal to your new home.

Advantages of a two or three year fixed mortgage

Short term fixes usually offer two main benefits…

• Flexibility
• Lower interest rates

A couple buying their first home on a tight budget but who expect their household income to rise sharply over the next two years, might also choose a two year fix. This would offer immediate stability with the option to remortgage to a better deal in a couple of years.

They’re also popular when rates are expected to fall, as borrowers see the value in switching to a better deal in the relatively near future.

Once again, you need to consider the flipside of the coin. If rates rise while you’re in a two year fixed term, your payments could shoot up when you remortgage.

Most fixed term deals come with an early repayment charge (ERC) which must be paid if you settle the loan before the end of the tied-in period. These can run to thousands of pounds.

If you plan to move home or remortgage in two years, the ERC on a three or five year fixed term might outweigh the benefits of the lower rate.

Likewise, if you have plans to renovate or refurbish your home, you might choose a short term fix. This is because remortgaging to release equity would require paying an ERC if you are still in your fixed period.

What interest rates are available?

Take a look at our rates table below to get an idea of the deals currently available for fixed-rate mortgages.

The rates cited above are for example purposes, were correct at the time of writing (May 2023) and are subject to change.

How a broker can help you get the best deal

The rates that lenders charge for fixed-rate mortgages subject to change at any time and can fluctuate according to strategic decisions, Bank of England base rate changes or wider economic conditions.

This makes identifying the lowest rates on the market and the best amount of time to fix in for a challenge in its own right. When you consider that your mortgage also needs to align with your longer term financial and life goals, it’s easy to see why seeking expert advice is critical.

The brokers we work with have whole-of-market access so can find you the best deal out there according to your circumstances. They look beyond the headline rate to determine the long term costs of each fixed rate available based on your immediate and future requirements.

Which lenders offer longer fixed rate mortgages?

Longer term fixed rates of ten years or more are becoming quite common and are currently offered by many major high street lenders including:

• Halifax
• Lloyds
• Nationwide
• Virgin Money

But they don’t always offer the best rates. For example, at the time of writing (September 2022), the lowest rate for a 25 year fixed rate (3.3%) is offered by Swansea Building Society. There are also lesser-known lenders with no high street presence who specialise in more complex loans and still offer competitive rates.

Get matched with a broker who can help with your fixed rate decision

Getting the best deal on a fixed rate mortgage relies on speaking to a broker who understands both the market and your situation.

Our broker matching service assesses your circumstances and then pairs you up with a broker who specialises in working with people just like you. So, using their in-depth knowledge and industry connections, you can rest assured that the deal you take is the best available with the right introductory rates period for you, based on your individual requirements.

To get matched with your ideal broker, call today on 0808 189 0463 or enquire online now.