Should I Fix My Mortgage Now?

The Bank of England has recently increased the base rate which has caused mortgage lenders to increase their interest rates. For over a decade, UK households have enjoyed consistently low mortgage rates – so rate increases have come as a shock with many wondering ‘should I fix my mortgage now?’

If you’re worried about whether to fix your mortgage rate, this guide outlines the circumstances where fixing is a good idea – and times you shouldn’t.

Let’s get to the bottom of this tricky mortgage dilemma.

What is a Fixed Mortgage Rate?

A fixed mortgage rate is a deal offered by lenders where the interest rate on your mortgage is set for a period (known as a product term).

Once you have fixed your mortgage rate, the lender can’t change the interest rate it charges you during this product term.

There are two other common mortgage rates:

• Tracker Mortgage Rate: Rises and falls according to the base rate set by the Bank of England. If the base rate goes up, your interest rate goes up on the mortgage.
• Standard Variable Rate (SVR): This is a mortgage rate that the lender sets and can rise and fall at the lender’s discretion. Standard Variable Rates tend to be uncompetitive.

What is a Mortgage Term?

There are two types of term associated with mortgages:

• Overall Term: This is the entire duration of your mortgage. Typically, this is 25 years, but lenders can offer much longer terms.
• Product Term: This is a short timeframe within your overall mortgage where you are tied into a mortgage product.

When your product term ends, you have the option to take another product from a different lender (remortgage), or your mortgage will automatically switch to the lender’s Standard Variable Rate.

Product terms range in length depending on which lender you choose. Typically, lenders offer product terms over 2 or 5 years.

When Should I Lock in a Fixed Mortgage Product?

There are a number of situations when fixing into a new mortgage product is preferable.

If Your Mortgage Product is Expiring

If your mortgage product has expired or is shortly ending, it is favourable in almost all cases to remortgage onto a new product.

This is because Standard Variable Rates are normally much higher than interest rates provided on mortgage products.

If the Product Rates Are Low

Sometimes lenders offer fantastic mortgage products, and these can be excellent to lock into on a long-term basis. For example, taking a low fixed rate for 5 years.

Fixing into a low rate for a long product term has two advantages:

• You know how much your mortgage will cost each month for the foreseeable future.
• If rates rise, you don’t need to worry as your low rate is fixed.

However, fixing for a longer product period has its disadvantages, as we will explain below.

When Shouldn’t I Fix My Mortgage Product?

This is a trickier question to answer. When compared to a Standard Variable Rate, it is almost always best to seek a new mortgage product.

Consider Your Product Term

Currently, mortgage rates are higher than they have been for a long time.

Remember, no one has a crystal ball and financial markets are difficult to predict and can change direction in an instant.

Borrowers are generally being guided by the media to fix into long term mortgage deals – to counter future expected interest rate rises.

This could be good advice, or it could be awful advice – because there is no way of knowing if rates will increase or for how long those increases will be in place.

2 Year Fixed Rates

If you are going to fix your mortgage, a 2-year fixed rate may be the most sensible option at the moment.

This is because fixing your mortgage is better than paying a Standard Variable Rate each month and if the economy improves in the next 2 years, you are not tied into a higher rate for a longer than necessary period of time.

5 Year Fixed Rates

The general narrative being peddled in the media is to take a fixed rate on as long a term as possible. This is short-sighted advice in some respects:

• On a 25-year mortgage, 5 years is 20% of the entire mortgage. Normally fixing for such a long duration is reserved for individuals that are completely confident in the product they are taking.
• 5 years is a Long Time. Cast your mind back 5 years and consider the problems in the economy and you will realise they are different to the problems faced today. Plenty can change in 5 years.
• Early Repayment Charges. If the economic outlook changes or you want to move house in the next 5 years, you could find you are trapped on an undesirable deal that initially seemed attractive. Lenders often have Early Repayment Charges on their mortgage products, and these can be expensive.

Discuss Fixing Your Mortgage Deal with a Whole of Market Mortgage Broker

Everyone is different with individual circumstances that make blanket financial advice given in the media problematic at best.

You might find that a long-term fixed rate is suitable for you. Likewise, you could take a long-term fixed rate and live to regret that decision.

Mortgage advisers will almost always advise you to take some form of mortgage product, simply because paying the Standard Variable Rate on a mortgage tends to be much dearer.

A Whole of Market Mortgage Broker, such as Boon Brokers, will review your specific financial circumstances. Considering areas like:

• Are you looking to upsize or downsize in the next 5 years?
• Your finances and how much the Cost-of-Living Crisis is likely to affect you.
• If extending your overall mortgage term is a better option to reduce ongoing costs.

Once a broker has collected all information relevant to your situation, they will make a recommendation specific to you.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. We provide FREE, no obligation mortgage advice. We do not charge client fees at any stage.

Contact Boon Brokers today for mortgage advice specific to your circumstances.