Mortgage Gamble – Fixed vs. Variable Rates

As mortgage rates rise to their highest level in over ten years, homeowners are facing a tough decision: should they lock in a long-term deal or hold out for lower rates in the future?

With the Bank of England’s interest rates increasing to 4.25% last month and experts predicting a further rise to 4.50% this year, many are considering their options carefully.

The Office for National Statistics (ONS) said approximately one million people had mortgage deals that are ending this year, 57% of those coming up for renewal in 2023 were fixed at interest rates below 2%.

These property owners are now looking at average two-year fixed mortgage rates of 5.32% and five-year fixed rates at 5%, as reported by Moneyfacts. Last year, these rates were just 2.65% and 2.88%, respectively.

And although forecasters predict rates to settle at 4-5% this year before gradually declining in 2024, the future remains uncertain.

So, what are the options?

Long-term fixed mortgages
Homeowners could choose to lock into a long-term fixed mortgage of five years or more. These deals are cheaper, as the markets expect interest rates to fall next year. This option offers security for a more extended period of time but means not seeing the benefits if rates start to come down.

The average five-year fixed rate on offer now is around 4.75%.

Shorter fixed-term contracts
Alternatively, homeowners could pick a shorter fixed deal, which will cost more now. The potential payoff is the hope that cheaper deals are likely to be available when the contract comes to an end. The average two-year fixed rate on offer is around 5.41%.

Trackers for the flexible
Overall, trying to predict what will happen with interest rates is a gamble, and getting advice from our expert mortgage advisors is vital.

Homeowners need to weigh the pros and cons of each option and decide what is best for their financial situation and we can help you do just that with access to over 70 lenders and hundreds of competitive mortgage products. 

Lets discuss your mortgage
If you would like to discuss a mortgage on a new or current property, please use the Schedule a Call button or call and speak to our award winning team today on 0208 364 3444.

House prices increase after mortgage rates ease
The latest house price rises suggest the property market is relatively stable, according to Halifax.

The price of the average UK home increased by 0.8 percentage points between February and March, according to Halifax, the UK’s largest mortgage lender. It means the price of the average home in the UK now stands at £287,880.

“The principal factor behind this improved picture has been an easing of mortgage rates,” said Kim Kinnaird, Director at Halifax.

She also described the UK housing market as stable at the beginning of the year as more buyers re-entered the market after muted activity towards the end of last year.

One in three landlords could be forced to sell up
One in three landlords is struggling to remortgage after failing their lender’s affordability test.

Mortgage rates rose sharply following last September’s mini-Budget. But while rates for homeowners have dipped back, buy-to-let mortgage rates have remained stubbornly high.

Analysis by broker Mortgages for Business shows a third of buy-to-let mortgage applications are now being rejected.

With some buy-to-let investors being forced to accept variable rates as high as 9.5 per cent as a result. Others are selling up because they can no longer afford their loans.

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