Should I fix for 2 years or 5 years?
If your fixed term rate is coming to an end this year, you may have a dilemma. How long should I fix my rate for? Should I fix for 2 years or 5 years. With interest rates predicted to tall over the next few years, a shorter fix might seem like a prudent choice. But it’s not as simple as that. In our latest article, Adam Nanson – Managing Director at Your Mortgage Expert gives his advice.
Should I fix for 2 years or 5 years?
“For a while, many industry experts have been predicting that mortgage rates will start to come down*. Inflation has started to come down and the Bank of England has predicting that the Base Rate will be 4.5% by Q2 2025 and 4% by Q2 2026**.
“As a result, it might seem like a no brainer to opt for a short term fix. In the hope that rates will be lower when your deal comes up for renewal in two years time.
“However, it’s not that simple. This is because 2 year fixed rates are currently more expensive that 5 year fixed rates. In fact, according to Moneyfacts, at the start of May the average 2 year fixed rate was 5.91% compared to 5.4% for 5 year fixed rates***.
“So, do you opt for a 2 year fixed rate and pay slightly more over the next two years in the hope that rates are lower in 2 year’s time?
“Or should you go for a 5 year fixed rate and pay slightly less? But this means you won’t be able to benefit from lower rates if they do fall as predicted.”
What is the right option for you?
“Ultimately, it comes down to personal choice. And it is a gamble basing your financial choices on predictions. None of us has a crystal ball so we don’t know what is going to happen to rates.
“A shorter fix does afford you more flexibility if you think your circumstances might change. Are you likely to move over the next 5 years? Are you likely to need to do any home improvements which you’ll need to remortgage your home for?
“A 5 year fix gives you certainty on your mortgage payments. By locking in your deal now, it gives you security on your mortgage payments for the next five years.”
Don’t fall onto the Standard Variable Rate
“The worst thing is to do nothing. If you fall onto the Standard Variable Rate it will probably cost you more money.
“Speak to a Mortgage Broker like Your Mortgage Expert. We will do all the calculations for you and discuss all your options.
“Mortgage offers are generally valid for six months. So if there is a low deal, we would recommend you lock it in early as deals aren’t hanging around. You can always switch to a different deal if rates do fall before you are due to fix your rate.
“Some clients are choosing more flexible options such as tracker mortgages. A Tracker Mortgage is sometimes known as a variable rate mortgage. It usually tracks the Bank of England’s base rate. When rates are high, if the base rate does peak and then starts to fall, a tracker will allow you to take advantage of falling rates.
“Tracker rates aren’t for everyone. And we will take the time to explain the options to you to ensure we make the most appropriate recommendation.”
Your Mortgage Expert is not like other mortgage brokers. Our expert, friendly team has over 80 years of experience in the mortgage and protection industry. We’ve over 100 five star reviews on Google and over 90 verified reviews on VouchedFor. And we would love to work hard for you.
We don’t charge anything up front, so by speaking to our mortgage advisers, you are under no obligation. We are based in Salisbury, Wiltshire, but we can help you no matter where you live in the UK.
Simply call us on 01722 322683 or complete a contact us form on our website and tell us when it would be best to get back in touch with you.
*Source: https://www.which.co.uk/news/article/when-will-mortgage-rates-come-down-aek4q9C56cYe
**Source : https://www.bankofengland.co.uk/monetary-policy-report/2024/may-2024
***Source : https://www.mortgagesolutions.co.uk/news/2024/05/09/average-mortgage-rates-tick-up-month-on-month-moneyfacts/