1-Year Fixed vs 2-Year Fixed Rate Deals: Are Short Fixes Worth It?

What’s the right fixed-rate mortgage? It’s a question that we all come to ask at some point, and with so many different terms, rates, and deals, it’s no wonder why.

Early repayment charges, limits on overpayments, and potential remortgaging costs can all make fixed-rate mortgages tricky to compare. Even between 1-year and 2-year fixed-rate deals, small differences in rates, flexibility, and payment plans can have a big impact.

So, which fixed rate deal is best, and should I fix my mortgage for 1 or 2 years?

In this article, we dive into all the pros and cons of 1-year vs 2-year fixed-rate mortgages, including how the different rates can affect your monthly payments and potential remortgage costs. By the end of this article, you’ll know which mortgage deal best suits your needs. Let’s begin.

Are Short Fixed-Rate Mortgage Deals Worth It?

Yes, short fixed-rate mortgage deals can offer several advantages. They provide predictable monthly payments for a limited period while giving flexibility in the mortgage and property markets, allowing you to avoid repayment penalties if you sell your home or to remortgage sooner if interest rates drop, all without committing to a long-term deal.

Amongst these advantages, there are a few common reasons why borrowers might choose to take out a short-term fixed-rate mortgage, including:

• You may be expecting a lump sum soon, whether from a bonus, inheritance, or the sale of another property. A short-term fixed-rate mortgage can give you the flexibility to make a large overpayment or redeem your mortgage early without penalty.
• You are planning on completing home renovations that could increase the property value, and want the flexibility to remortgage to a better deal with a lower loan-to-value ratio, after these renovations are completed.
• You may be purchasing a property with the plan to sell in the near future. As such, a short-term fixed-rate mortgage could help avoid incurring repayment penalties if the property is sold after your fixed term ends.
• You expect interest rates might fall soon, a short-term fixed-rate mortgage gives you the flexibility to remortgage earlier and take advantage of a lower rate.

With that said, even if you’re unsure on your exact plans for the future, opting for a 1-year or 2-year fixed-rate mortgage can still offer its advantages. You can benefit from the predictable monthly payments – as with all fixed-rate mortgages – while still keeping your options open for the next step in your mortgage journey.

Importantly, both options will typically allow for overpayments and early redemption – depending on your chosen lender and mortgage product criteria – but the trade-offs between rates, stability, and potential remortgage timing will naturally differ.

To illustrate the key differences between a 1-year and 2-year fixed-rate mortgage, we’ve created a table below to summarise the key features and considerations.

Why Are 1-Year Fixed Mortgages Rare in the UK?

A 1-year fixed mortgage can be difficult to come by in the UK for the simple reason that lenders will generally prefer products that allow them to earn interest consistently over a longer timeframe, rather than renegotiating the loan after just 12 months. Short term mortgages require the lender to renegotiate the deal, which increases administration and reduces the time they can rely on a predictable interest return.

In addition to this, demand also plays a major role. While there are borrowers who actively search for 1-year fixed mortgage deals, the majority of borrowers tend to lean towards a longer fixed-term rate, prioritising financial security and predictable monthly payments for an extended period of time.

As a result, most lenders in the UK will offer a 2-year fixed mortgage as the shortest standard option available to borrowers. However, 1-year fixed rate mortgages, though rare, do still exist and can be a perfect product in the right situations.

If you’re on the lookout for a 1-year fixed mortgage, then working with Boon Brokers can make all the difference. As a whole-of-market, fee-free broker, our dedicated mortgage advisers can quickly check which lenders are currently offering these deals, helping tailor a mortgage plan that aligns with your needs.

Is a 1-Year Fixed Mortgage a Good Idea if Interest Rates Are Falling?

For borrowers who are keeping a keen eye on the base rate and expect mortgage interest rates to fall, a 1-year fixed mortgage could be a great mortgage product that provides the flexibility to take advantage of lower rates sooner.

As we’ve touched on before, a main benefit of short fixed-term mortgages is that it allows you to lock in a rate temporarily, while giving the option to remortgage in the foreseeable future should a better deal appear.

However, there are trade-offs that you will need to consider. While short-term fixes can provide the benefit of remortgaging sooner, they may initially be slightly higher than the lowest rates you could find available on longer term mortgage products. And, while it may appear obvious, it’s important to keep in mind that a 1-year fixed rate deal will only protect your chosen rate for 12 months. Should there be an unkind shift and mortgage rates rise, then you may have to remortgage onto a deal with higher interest rates than previously.

In short: Whether a 1-year fixed mortgage is a good idea will wholly depend on your personal circumstances and plans for the future.

It is best practice to discuss all of your options with a trusted whole-of-market broker. At Boon Brokers, our mortgage experts will take the time to listen to your requirements and plans, offering fee-free mortgage advice on the best route forward.

What Are the Risks of Choosing a 1-Year or 2-Year Fixed Mortgage in the UK?

Both 1-year and 2-year fixed mortgages carry certain risks. These include changes in interest rates when you remortgage at the end of your term – for example, with a 1-year fix, if base rates have risen, you could be offered a higher rate than your previous fixed deal – as well as the cost of remortgaging and having limited access to certain deals.

While a 2-year fix can help reduce some of these potential risks by offering a slightly longer repayment plan, with fewer necessary remortgages and more predictable budgeting, it’s important to note that the risks do not disappear entirely.

With this in mind, the primary risks that you need to consider when choosing your mortgage term are:

• Increased Remortgaging Costs

By the nature of being a 1-year (12 month) fixed period, borrowers will need to remortgage much sooner. Having to remortgage more frequently can increase your overall expenses, including cumulative cost of remortgaging, legal costs for remortgage, and repeated valuation or administrative fees.

• Interest Rate Uncertainty

With any fixed-term arrangement, payments are only fixed for the agreed term. Should the rates rise after your fix ends, your monthly payments could subsequently increase, even if you remortgaged to a new mortgage product.

• Limited Access to Some Deals

While 2-year fixed terms are now widely offered by most leading and specialist UK lenders, 1-year fixed mortgage rates can be harder to find. This often means fewer options are available, making it even more important to compare deals across the whole market before committing.

Is a 2-Year Fixed Mortgage Rate Better than a 1-Year Fixed Mortgage Rate?

A 2-year fixed mortgage rate is not necessarily better or worse than a 1-year rate, however, it can be the smarter choice of product for borrowers who are looking to prioritise planning monthly repayments with fewer opportunities to remortgage.

Compared with a 1-year fixed mortgage, a 2-year fixed mortgage rate can help provide:

• Predictable monthly payments for a longer period.
• Extend the amount of time before you need to remortgage.
• Protect against market fluctuations for a longer period of time.
• Flexibility to overpay or refinance after two years.

Overall, a 2-year fixed mortgage may appeal to those seeking slightly longer-term stability than a 1-year fix, while still benefiting from a relatively short-term commitment compared with longer fixed deals.

Will My Monthly Payments Be More Stable With a 2-Year Fixed Deal?

Yes, a 2-year fixed mortgage will provide predictable monthly payments for longer, offering more payment stability than a 1-year fixed mortgage deal. With a longer guaranteed rate, you won’t need to worry about mortgage interest rates changing for two years, giving you breathing room to plan your finances.

For borrowers who are seeking even longer-term security, selecting a longer fixed, such as a 5-year fixed mortgage rate, can extend this stability even further, though they come with a longer commitment.

In short: The shorter period will mean that you could face new rates sooner, making monthly payments less predictable. On the other hand, a slightly longer rate – such as a 2-year deal – can help balance the certainty of your repayments with a relatively short commitment, helping you stay in control of your finances.

How Do Remortgage Costs Compare Between 1-Year and 2-Year Fixed Rate Deals?

The short answer is that the cost of remortgaging will usually be higher with a 1-year fixed mortgage because you need to switch deals more often. Naturally, the frequency of remortgaging affects overall costs.

As a result, when you compare the remortgage costs with a 2-year fixed deal, the fact that you would need to remortgage less often can save you money over time.

It’s important to note that the average cost to remortgage includes valuation fees, legal fees, and arrangement charges, all of which can quickly add up to potentially offset the benefits of a short fix.

As such, when weighing the total remortgage costs and fees, it is important to work with a trusted whole-of-market broker who can help you compare products and avoid unnecessary expenses. When calculating the total cost, it’s essential to consider potential exit fees and the financial impact of frequent rate changes to make an informed decision.

What Are Mortgage Experts Predicting for Interest Rates Over the Next 12–24 Months?

It’s vital to understand that mortgage experts can comment on recent trends and industry expectations, but they cannot provide regulated mortgage advice that is based on future interest rate predictions. This is because mortgage interest rate forecasts are never guaranteed, and lenders will adjust their pricing in response to economic changes that can shift very quickly.

With that said, learning recent trends and understanding the expectations around rates and analysts’ predictions on whether they’re likely to rise or fall over the next one to two years can still be an invaluable asset.

Based on the latest available market commentary, the current market commentary suggests the following trends:

• Rates Are Expected to Fall: Many economical analysts are forecasting that the Bank of England base rate could continue to fall inline with inflation.
• Mortgage Rates to Remain Stable: Despite anticipated cuts, analysts expect average fixed rates to sit within a moderate range rather than drop back to the exceptionally low levels seen earlier in the decade.
• Slow Changes: Most predictions point to gradual changes. While deals may improve, significant drops within a short period are unlikely.
• Lender Competition Could Influence Pricing: As lenders compete for market share, some fixed-rate products may become cheaper even before any major base rate changes take place.

It’s important to note that because forecasts can change, the most reliable way to choose the right term is to base your decision on your own financial plans, not predictions alone. Working with a trusted whole-of-market broker – like Boon Brokers – can help provide you with all the information you need, specific to your financial circumstances.

Get Personalised Mortgage Advice from a Trusted Broker

Choosing the right mortgage can feel like a herculean task. Whether that’s deciding between a 1-year or 2-year fixed mortgage or understanding how the different rates will affect your monthly payments, it can be difficult to know which deal truly aligns with your plans.

Fortunately, a trusted mortgage broker can make your mortgage journey much simpler. They will help you compare the advantages and drawbacks of each term length, explain how different mortgages work in practice, and highlight any legal costs for remortgage or additional fees you may face.

At Boon Brokers, our dedicated mortgage experts provide a completely fee-free, whole-of-market service. With access to over 100 UK lenders, we ensure that you see the full picture, matching you to the mortgage that truly suits your needs.

Need personalised mortgage advice on which fixed-term mortgage is right for you?

Contact Boon Brokers today and let our dedicated experts guide you through your mortgage options with confidence.