A fixed rate mortgage can give peace of mind to people who want to be sure of their monthly outgoings, but with rates changing, which is best for you?
A fixed rate mortgage is a loan which charges the same repayment fee each month for a set period of time. This is usually two or five years, but there are an increasing number of 10 year products available, while some smaller specialists are offering 30 year fixed rate mortgages.
Once the fixed rate term is over a borrower will be transferred onto the lender's standard variable rate unless they remortgage with another product such as a new fixed rate, or tracker.
Longer term mortgages can be good when you know you won't be moving for a while. Most charge an early repayment fee if you want to exit after selling your home, although some mortgage providers do allow borrowers to transfer their mortgage to a new property if they move within the fixed term. This is known as a ‘portable’ mortgage.
However it’s worth noting that the interest rates outside the bubble of your fixed term can change wildly over the years, so an affordable price now might not be such good value a few years later if rates drop.
Inflation does affect fixed-rate mortgages, but it depends which part of the cycle a borrower is at as to whether they are at an advantage or disadvantage.
In 2022 and 2023, inflation in the UK rocketed partly due to the price of energy and shortage of labour. The Bank of England launched an aggressive campaign of successive base rate rises in a bid to reduce spending and bring inflation down.
Those already on a fixed rate mortgage were spared from these rising interest rates as they had probably signed up for a deal when rates were very low.
However, as they come to the end of their term and need to either renew or use a standard variable rate mortgage, they will find their mortgage repayments will be dramatically higher than they were. This is because higher inflation has driven higher interest rates, increasing the cost for mortgage providers to borrow and fund their loans.
So yes, inflation does affect fixed-rate mortgages because rising inflation usually causes interest rates to rise too. But these effects will only be felt when it comes to remortgaging or getting a first mortgage. Similarly, inflation that is below the Bank of England's target of 2% could see it reduce its base rate, making it cheaper for mortgage customers to get loans.
A 10 year fixed rate mortgage is becoming a more popular product in the UK due to rising interest rates. Borrowers are hoping for security and certainty. But a 10-year fixed rate mortgage can also be a weight around the neck of some households who are stuck paying a higher rate long after interest rates have fallen, or who want to move house but the mortgage isn’t what is known as ‘portable’.
The best fixed rate mortgage depends on a borrower’s circumstances. It may be that you envisage moving to a new property in a couple of years and don’t want to be tied down to a long term loan, or you think mortgage rates will go down soon and don’t want to be locked into a more expensive rate. In this case a shorter-term fixed rate mortgage could be more suited to your needs.
Some people may decide they are staying in their property for the long haul or want to secure what they see as a good deal for a sustained period so are more drawn to a five or 10-year deal.
Lenders are always changing their rates and adding or removing products from the market. That’s why it can be useful to use a broker or comparison site to monitor and see the cheapest and best products available. Our partners know how to get you the cheapest fixed rate on the market.
Some deals include a ‘product fee’ which is usually about £1,000, while others waive the fee but they may charge slightly more for the mortgage. This can be the case with mortgages from the same lender, so you might want to do the maths to see whether the cheaper deal is actually costing you more in the long run.
It’s also worth looking at the early repayment charges if you wish to end the mortgage sooner. If you take out a 10-year mortgage which takes you to the end of your loan but choose to downsize in that time, or maybe take early retirement, you may incur a penalty fee to end the mortgage early. For long-term mortgages the penalty can decrease as you get closer to the end of the loan period.
| Job | Estimate |
| Secured loan | £102.00 per month |
| Remortgaging | £1195.00 per month |
| Cheap variable rate mortgage | £1159.00 per month |
| Cheap tracker mortgage | £1303.00 per month |
| Cheap offset mortgage | £1088.00 per month |
| Cheap interest only mortgage | £1147.00 per month |
| Cheap fixed rate mortgage | £1245.00 per month |
| Cheap capital repayment mortgage | £1256.00 per month |
| Cheap buy to let mortgage | £1271.00 per month |