One of the most significant decisions you’ll face when getting a mortgage is whether to go for a fixed rate mortgage deal, which provides security and protection against fluctuating interest rates, or a variable rate.
This guide will help you weigh the pros and cons of fixing your mortgage for either 2 or 5 years, which will help you with your decision in this particularly turbulent market.
2 or 5-Year Fixed Mortgage: 2024 into 2025
A question our mortgage advisors often get asked is, “Should I fix my mortgage for 2 or 5 years?” With the current turbulent mortgage market and rates starting to drop slowly, choosing the right fixed term has never been more important.
A fixed-rate period allows borrowers to lock in interest rates for a specified duration, protecting them against potential increases.
After significant increases in interest rates during the latter half of 2022 and well into 2023, we’ve observed that choosing a 5-year fixed rate in 2024 could leave you with a high interest rate even as rates begin to fall.
However, there is light at the end of the tunnel. After peaking in 2023, both 2 and 5-year fixed mortgage rates have started to drop in the first half of 2024. This is the first time we’ve seen a decline in interest since the end of 2021.
Notably, 5-year fixed rates are dropping faster than 2-year rates; as of August 2024, they are slightly below 5% on average. This is significant because longer-term mortgage rates are now lower than shorter-term ones—a trend we haven’t seen in years.
“We believe that in 2024, rates could fall further, particularly if mortgage lenders have targets to meet as we end 2024 and go into 2025. There is no doubt that the current mortgage market is settling down, which is why it is more important than ever to get in touch with an expert mortgage advisor to consider the right mortgage rate and deal for you.”— Steve Roberts, YesCanDo Money CEO
Is a 2-Year or 5-Year Fixed Mortgage Better?
Both 2-year and 5-year fixed-rate deals are popular for homeowners, providing stability and predictability in mortgage repayments. However, your decision should be based on your circumstances, financial goals, and market expectations.
A Quick Summary
- 2-Year Fixed: Offers flexibility and potentially lower rates but comes with the need to remortgage sooner.
- 5-Year Fixed: Provides security and rate protection but locks you in for longer, which could cost more if interest rates drop in the next five years.
Should I Fix My Mortgage for 2 Years?
Three Pros of a 2-Year Fixed Mortgage:
- Remortgage Sooner: If rates drop in the next two years, you can switch to a better deal sooner.
- Lower Fixed Rates: Historically, 2-year fixed rates are lower than longer terms, though the gap between 2 and 5-year rates has narrowed recently.
- Shorter Commitment: A shorter fixed-term might be best if you’re moving or want flexibility to take advantage of falling rates.
Additional Considerations:
- Risk of Rate Increases: While a 2-year fix gives you flexibility, you may have to remortgage at higher rates if rates rise over the next two years.
- Affordability: If you’re concerned about managing risk and maintaining affordability, a shorter fix might be better, but you must be prepared for rate changes. If interest rates rise, your monthly payments could increase significantly when you remortgage.
Should I Fix My Mortgage for 5 Years?
Three Pros of a 5-Year Fixed Mortgage:
- Rate Protection: Fixing for 5 years will protect you from rate rises and provide long-term stability.
- More Financial Certainty: If you’re expecting changes in your financial situation, such as a job change or growing family, a longer-term fix will ensure consistent payments.
- More Time to Save for the Next Mortgage: With 5 years, you have more time to prepare financially for your next mortgage and avoid the stress of remortgaging sooner.
Additional Considerations:
- Stability for Long-Term Homeowners: If you plan to stay in your current home for a long time, a 5-year fixed mortgage will give you the peace of mind of stable payments, which is especially important in an uncertain market.
- Potential Higher Costs: 5-year fixed rates have become more competitive but are traditionally higher than shorter-term fixes. However, the stability may outweigh the cost difference.
- Understanding Fixed Rate Mortgage Deals: It’s crucial to understand the implications of a fixed-rate mortgage deal, especially as it nears its end. Homeowners should consider options like transitioning to a Standard Variable Rate or remortgaging to secure a new deal, and may benefit from using an independent mortgage broker to find the best options tailored to their financial circumstances.
“From what we’re hearing from our customers, 2 years is too short and 5 years feels like an eternity. With interest rates so unpredictable now, 3-year fixed and tracker mortgages are becoming more popular and will remain so in late 2024 and into 2025.”— Steve Roberts, YesCanDo Money CEO
Best Fixed Interest Rates for 2 and 5-Year Mortgages
Knowing the current fixed-rate mortgage deals will help you make a better decision. Below is a live table with the best deals available for 2-year and 5-year terms.
Below is a graph showcasing the past 2 and 5 year fixed rates:
Current Best 2-Year Fixed Rate Mortgage
The below rates are the best 2-year fixed rates as of 28th August 2024. These rates are based on a £250,000 mortgage on a £150,000 property (60% loan to value). Please note that rates may vary and may no longer be available at the time of application.
| Lender | Initial Rate | Initial Payment | Reverting Rate | Reverting Payment | Total Fees | Type | APRC | Total Cost |
|---|---|---|---|---|---|---|---|---|
| Virgin Money | 0.35% | £522.27 | 8.74% | £1,163.62 | £1,234 | 2-Year Fixed | 7.3 | £13,617 |
| Furness Building Society | 1.35% | £589.47 | 8.54% | £1,141.74 | £1,019 | 2-Year Fixed | 6.9 | £15,016 |
| NatWest | 3.77% | £772.83 | 7.99% | £1,083.99 | £1,525 | 2-Year Fixed | 6.4 | £26,129 |
| HSBC | 3.79% | £774.47 | 6.99% | £1,005.78 | £1,516 | 2-Year Fixed | 5.8 | £25,234 |
| TSB | 3.79% | £774.47 | 7.49% | £1,044.73 | £995 | 2-Year Fixed | 6.1 | £25,283 |
Current Best Mortgage Rates 5-Year Fixed
The below rates are the best 5-year fixed rates as of 28th August 2024. These rates are based on a £250,000 mortgage on a £150,000 property (60% loan to value).. Please note that rates may vary and may no longer be available at the time of application.
| Lender | Initial Rate | Initial Payment | Reverting Rate | Reverting Payment | Total Fees | Type | APRC | Total Cost |
|---|---|---|---|---|---|---|---|---|
| Virgin Money | 2.35% | £661.65 | 8.74% | £1,115.37 | £1,234 | 5-Year Fixed | 6.2 | £40,782 |
| NatWest | 3.77% | £772.83 | 7.99% | £1,083.99 | £1,525 | 5-Year Fixed | 6.4 | £49,196 |
| HSBC | 3.79% | £774.47 | 6.99% | £1,005.78 | £1,516 | 5-Year Fixed | 5.8 | £49,156 |
| TSB | 3.79% | £774.47 | 7.49% | £1,044.73 | £995 | 5-Year Fixed | 6.1 | £48,765 |
| Santander | 3.80% | £775.28 | 7.25% | £1,025.18 | £999 | 5-Year Fixed | 5.9 | £49,043 |
Introducing 3-Year Fixed Rate Mortgages
As the financial landscape evolves, 3-year fixed-rate mortgages are becoming more popular. They offer a middle ground between 2- and 5-year terms, which could be the sweet spot for those who want rate security and flexibility.
The mortgage rate for 3-year fixed terms typically falls between those for 2 and 5-year terms.
Why a 3-Year Fixed Rate?
- Intermediate Term: Fits with short to medium-term goals.
- Rate Security: Protects against rate rises over the next 3 years.
- Flexibility: Allows you to reevaluate your mortgage situation sooner than a 5-year term.
Factors to Consider:
- Interest Rates: Typically fall between those for 2 and 5-year terms.
- Early Repayment Charges: Be mindful of any penalties for exiting early.
- Future Plans: A 3-year term might be suitable if you expect changes in your financial situation.
Current Best Mortgage Rates 3-Year Fixed
The below rates are the best 5-year fixed rates as of 28th August 2024. These rates are based on a £250,000 mortgage on a £150,000 property (60% loan to value). Please note that rates may vary and may no longer be available at the time of application.
| Lender | Initial Rate | Initial Payment | Reverting Rate | Reverting Payment | Total Fees | Type | APRC | Total Cost |
|---|---|---|---|---|---|---|---|---|
| Virgin Money | 2.35% | £661.65 | 8.74% | £1,115.37 | £1,234 | 3-Year Fixed | 6.2 | £29,673 |
| NatWest | 3.77% | £772.83 | 7.99% | £1,083.99 | £1,525 | 3-Year Fixed | 6.4 | £34,888 |
| HSBC | 3.79% | £774.47 | 6.99% | £1,005.78 | £1,516 | 3-Year Fixed | 5.8 | £33,138 |
| TSB | 3.79% | £774.47 | 7.49% | £1,044.73 | £995 | 3-Year Fixed | 6.1 | £33,033 |
| Santander | 3.80% | £775.28 | 7.25% | £1,025.18 | £999 | 3-Year Fixed | 5.9 | £33,291 |
How Long Should You Fix Your UK Mortgage for in 2024?
When deciding how long to fix your mortgage, consider the following:
After the fixed-rate period ends, borrowers typically transition to the lender’s standard variable rate (SVR). At this point, they can either stay with the higher interest rate, opt for another fixed period, or explore remortgage options to find a more favourable deal.
Current Market Conditions:
The Bank of England’s base rate is at its highest in 16 years, so fixing is more important than ever. The average 2-year fixed rate is 5.79%, and the 5-year fixed rate is 5.39%. Rates are coming down, and fixing for a short term might allow you to remortgage when rates drop further.
Personal Circumstances:
- Duration of Stay: A longer fix might be better if this is your forever home. But if you expect to move in the next few years, a shorter fix might be better to avoid early repayment charges.
- Risk Tolerance: How comfortable are you with financial risk? If you want stability and predictability, a longer fix might be for you. A shorter fix could be better if you’re happy to take a chance on future rate drops.
Affordability:
Do you need affordability-enhancing products like Joint Borrower Sole Proprietor (JBSP) mortgages or guarantor mortgages to manage higher monthly payments?
“We’ve been around for over 40 years, so consider your long-term plans and the economic climate when choosing between a two or five -year fixed rate. With a newly elected Labour government saying we could be looking at austerity and a possible economic downturn, a longer-term fix might be better. But locking in for too long in a falling rate environment can be expensive. Additionally, choosing a variable-rate mortgage can offer lower initial costs but introduces uncertainty in monthly repayments due to fluctuating interest rates. Our mortgage advisors will help you make the right decision with you.”— Steve Roberts, YesCanDo Money CEO
Summary: How Long Should You Fix Your Mortgage?
- 2-Year Fixed: Flexibility to remortgage sooner but risk of higher rates at renewal.
- 5-Year Fixed: Stability and protection against rate rises won’t allow you to take advantage of rate drops without penalties.
- 3-Year Fixed: Balances flexibility and stability, offering the best of both worlds in a volatile market.
Ultimately, it all depends on your circumstances, plans, and the economic climate. Our mortgage advisors will help you determine your options and find the best mortgage.
What to Do When Your Fixed-Rate Mortgage Ends
If your fixed-rate mortgage ends in 2024, you have several options:
- Remortgage: Either with your current lender (product transfer) or a new mortgage lender to get a better deal.
- Standard Variable Rate (SVR): If you do nothing, you’ll likely move onto your mortgage lender’s SVR, which is higher than fixed rates.
- Other Options: If affordability is a concern, you might look into part-and-part or interest-only mortgages to manage payments. For those who are confident that interest rates will drop over the next couple of years, a tracker mortgage might be worth considering.
Pros and Cons of Fixing Your Mortgage
Understanding these pros and cons will help you decide which mortgage option aligns best with your financial goals and lifestyle needs.
One potential risk associated with variable-rate mortgages is that rising interest rates can lead to higher and more unpredictable repayments, especially in the current economic climate.
Pros:
- Protection Against Rate Rises: You lock in a rate, so your payments stay the same even if the market rates increase.
- Savings on Fees: Staying with the same mortgage for longer means fewer remortgaging fees.
- Stability During Life Changes: A fixed mortgage protects against financial uncertainty during significant life changes, such as having a family or changing jobs.
Cons:
- Higher Mortgage Payments: Fixed rates generally mean higher monthly payments than variable rates.
- Early Repayment Charges: Moving or paying off your mortgage early during the fixed term can cost you a lot.
- Missing Out on Rate Drops: If rates drop after you’ve fixed your rate, you could pay more than you need to.
Get in touch with our team if you have any questions and check out our other for further information on the different kinds of mortgages available.
FAQs
Is it better to get a shorter or longer fixed term on a mortgage?
The choice depends on your financial situation and future plans. Shorter terms offer lower rates and flexibility, while longer terms provide rate stability which helps in budgeting.
Who has the best 5 year fixed term mortgage rates UK?
It varies, but comparing rates from different lenders or consulting a mortgage broker can help identify the best 5-year fixed term mortgage rates in the UK.
Is it best to get a 2-year or 5-year fixed mortgage?
A 2-year fix offers lower rates and flexibility, ideal if rates might drop. A 5-year fix provides longer rate stability, beneficial in a rising rate environment.
Is a 2-year fixed mortgage a good idea?
A 2-year fixed mortgage can be a good idea if you anticipate better rates or a change in your financial situation in the near future, offering a blend of rate stability and flexibility.
Will mortgage rates go down in 2024 UK?
It's hard to predict with certainty. Factors like economic conditions and Bank of England policy will impact whether mortgage rates decrease in 2024 in the UK.
