If you’re currently looking for a mortgage, you will have a number of options ahead of you. One of these options will be choosing between a variable rate mortgage or a fixed rate mortgage.
2 or 5 year fixed mortgage 2023 into 2024
I question our mortgage advisors often get asked “should I fix my mortgage for 2 or 5 years?”. With the current turbulent mortgage market and with rates continuing to rise, choosing the right fixed term has never been so important. Now that the interest rates have risen so much during the second half of 2022 and well into 2023, it’s been our observation that choosing a 5 year fixed rate could leave you with a high interest rate even when rates start to fall.
However, there is light at the end of the tunnel as 2 and 5-year fixed mortgage rates have started to drop during the second half of 2023 for the first time since the end of 2021.
Recent 2 and 5-year fixed interest rates
It is our observation that lenders are slowly reducing their fixed rate mortgages as 2023 comes to and end. After the base interest rate rose all mortgage lenders had to increase their rates, however now that the dust has settled lenders are slowly adjusting their rates. This meant in in Novemeber 2023 the average 2 and 5 year fixed rates continue to dip and on average have dropped a little below 6%. We have also seen the 5 year fixed rates drop quicker than the 2 year fixed and are now an average lower rate than the 2 year, this is something we have not seen in the last couple of years. We believe that in 2024 the rates could fall further, this will particularly be the case if mortgage lenders have certain targets to meet as we end 2023 and go into 2024. There is no doubt that the current mortgage market is a turbulent one, this is why it is vital more than ever to get in touch with an expert mortgage advisor to consider the right mortgage deal options for you. – Steve Roberts (YesCanDo Money CEO)
Is a 2-year or 5-year fixed mortgage better: A quick guide to choosing the best rate type for you
2 or 5-year fixed mortgage deals are the popular choices for most customers. However, some people choose 3-year deals or deals that last for 7 or 10 years (or an even longer period) to suit their own circumstances.
- If you choose a variable rate mortgage, your repayments could rise or fall at any time. This is because variable-rate mortgages are based on fluctuating interest rates so you will have less financial stability if you choose this type of mortgage.
- With a fixed-rate mortgage, the interest rates stay the same over the duration of the mortgage term. As such, your mortgage repayments won’t change if you choose this option.
Should I fix my mortgage for 2 years?
Three pros of a 2 year fixed mortgage:
- You will be able to remortgage earlier
- You may benefit from lower fixed rate deals
- You’re not locked into a long-term commitment
Should I fix my mortgage for 5 years?
Three pros of a 5 year fixed mortgage:
- You can beat rising interest rates
- You can have more financial certainty
- You’ll have more time to save for a new mortgage
Hopefully, this gives you some quick guidance on choosing the best-fixed rate period for your situation. Continue reading where we delve deeper into the advantages and disadvantages of 2 and 5-year fixed rates. Alternatively, if you want to talk figures, speak to our mortgage advisors. As a mortgage broker, we have access to mortgage calculators and can help advise which rate period is best suited to your personal situation.
Judging by the feedback we’ve been receiving from our customer, two years is far too short and five years feels like an eternity. Since interest rates are so unpredictable now, it appears that 3 year fixed rate mortgages and tracker rates are becoming more popular and will remain a popular choice in 2024. – Steve Roberts (YesCanDo Money CEO)
A deep dive: Should I fix my mortgage for 2 or 5 years?
Choosing between 2 or 5-year fixed mortgages isn’t always straightforward, especially during the current economic climate. We can help you make the right choice should you choose to use our services but in the meantime, here are the advantages and disadvantages of each.
3 Advantages of a 2-year fixed rate mortgage
The advantages of 2-year fixed-rate mortgages include:
1) You will have the opportunity to remortgage earlier
If banks and other mortgage lenders lower their interest rates over the next two years, you will be able to move onto a cheaper mortgage deal sooner rather than later.
2) You may benefit from lower fixed rate deals
Interest rates on mortgages with a 2-year fix are typically lower than those on longer fixed deals. However, when comparing 2-year fixes to five–year fixes, there is often very little difference in interest rate so you may get an affordable deal either way.
3) You’re not locked into a long-term commitment
If you think you might move house after a couple of years or if you want to take advantage of falling rates of interest (if there is a drop within the two years of your mortgage term), then a shorter mortgage commitment could be better for you.
3 Disadvantages of 2-year fixed rate mortgages
The disadvantages of 2-year fixed mortgages include:
1) Your interest is fixed for a short length of time
This isn’t a bad thing if mortgage rates fall but if they rise, you may have to move on to a deal with a more expensive mortgage rate. If you don’t move your mortgage, you will move onto your lender’s standard variable rate and this will typically be higher than the rate that you were on.
2) You may have less financial certainty
Fixed-rates do give you more financial certainty but this is only for the length of time that they last. If you think your income might drop, a mortgage with a longer fixed term may be preferable if you don’t want to risk a new deal with increased monthly payments.
3) You will have to pay new mortgage fees
You will pay mortgage fees whenever you decide to remortgage but on a 2-year fixed mortgage, you will have less time to save money for these.
3 Advantages of a 5-year fixed rate mortgage
The advantages of five-year fixed-rate mortgages include:
1) You can beat rising interest rates
Home buyers on tracker mortgages or shorter-term fixed-rate mortgage deals will be financially worse off if the base rate continues to rise. With the average five year fix deal, however, you stand a better chance of beating interest rate rises as you will remain on your existing interest rate for longer.
2) You can have more financial certainty
Changes to your lifestyle can affect your financial position. If you think you might be financially worse off during the next five years, be that because of a job change or an addition to your family, you won’t have to worry about any increases to your mortgage payments if you have a longer fixed mortgage term.
3) More time to save for a new mortgage
If you want to avoid your lender’s standard variable rate and take out a new mortgage at the end of your five-year fixed-term deal, you will have more time to save for the various mortgage fees that you will be subjected to.
3 Disadvantages of a 5-year fixed rate mortgage
1) You may incur a higher interest rate
Customers on longer fixed-rate deals often have to pay a higher rate of interest than those on a shorter fixed period. However, the difference between the fixed mortgage rates on a two and five-year deal has narrowed in recent years so financially, you shouldn’t be that worse off.
2) You have a longer-term commitment
You’re tied into a deal with your mortgage lender for longer so if you want to move house before your fixed-rate mortgage term ends, you may have to exit your existing mortgage if your lender won’t let you port your mortgage to a new property. You will then incur the early repayment charge set by the lender.
3) You won’t be able to take advantage of falling interest rates
While you will benefit from a longer mortgage term if the interest rate rises, there is the risk that you will be financially worse off if we see falling interest rates as you will still be stuck with your current mortgage rate. You could exit your mortgage to take advantage of the lower rate with a new lender, but as we mentioned already, you may be penalised by your current mortgage lender.
Introducing 3-Year Fixed Rate Mortgages
As the financial landscape evolves, more lenders are offering 3-year fixed rate mortgages, providing a middle ground between the traditional 2 and 5-year terms. This option can be appealing to those seeking a balance of rate security and flexibility.
Why a 3-Year Fixed Rate?
- Intermediate Term: A 3-year term aligns well with short to medium-term financial goals, providing a longer rate of security than a 2-year term without the long commitment of a 5-year term.
- Rate Security: Protect yourself from potential rate hikes over the next three years, especially beneficial in a rising interest rate environment.
- Early Exposure to Better Rates: Re-evaluate your mortgage situation sooner than a 5-year term, potentially benefiting from better rates if market conditions improve.
Factors to Consider:
- Interest Rates: Rates for 3-year fixed mortgages may fall between those for 2 and 5-year terms. Shop around to get the best deal.
- Early Repayment Charges: Be aware of any charges for changing your mortgage before the end of the fixed term.
- Future Plans: If anticipating significant changes in your financial or personal circumstances, a 3-year term may offer the right balance of stability and flexibility.
Engage with a mortgage advisor to explore if a 3-year fixed-rate mortgage aligns with your financial strategy, and to understand the growing market offerings in this segment.
How long should you fix your UK mortgage for in 2024?
With the Bank of England’s previous rate increases and the uncertain market, fixing your mortgage remains a prudent choice in 2024. The choice between short-term (1 or 2 years) or longer-term fixes (3 to 5 years) hinges on your personal outlook and the now more available 3-year fixed rate. Consult a mortgage advisor to explore the most suitable fixing term for your situation in the current market dynamics.
Our professional opinion on whether you choose a 2-year or 5-year fixed rate deal
As an established company of 40 years, we have a lot of experience in the rise and fall of interest rates. At the beginning of an economical downturn, it can be wise and beneficial to consider fixed rates for a longer term of 5 years. However what you don’t want to do is fix your rate for too long as interest rates start to drop towards the end of the downturn. Talk to one of our experienced expert mortgage advisors who be able to give advice and guidance on whether you should fix your mortgage for 2 years or 5 years. – Steve Roberts (YesCanDo Money CEO)
For people on a variable rate mortgage, their monthly mortgage payments will go up as a consequence. For people on a fixed mortgage, their payments won’t change so if they took out a mortgage when rates were low, they will still be able to benefit from lower monthly repayments.
What does this mean for you?
Well, if you’re currently looking for a mortgage, perhaps your fixed-rate period ends in the next 6 months, it may be wise to lock in a fixed-rate deal now before interest rates rise further. By doing so, you will have the opportunity to lock yourself into a deal at the current rate of interest. The longer you wait during this time of economic uncertainty, the higher the likelihood of your monthly repayments being larger if rates rise as predicted.
Summary of how long should you fix your mortgage?
If you are still thinking about how long should I fix my mortgage, we summarise our guidance below.
With a two-year fixed period mortgage, you will have the opportunity to move onto a better deal if mortgage rates drop just as your term ends. However, you do this at your own risk as there is still the possibility that rates could rise so you may have to take a costlier deal at the end of the two years.
With a five-year fixed mortgage, you will be tied into your deal longer. This is advantageous to you if the mortgage rates continue to rise but if rates drop before the end of your mortgage term you won’t benefit from a cheaper deal unless you decide to remortgage sooner than your mortgage end date. If you do exit your deal before your mortgage term is over, you may have to pay early repayment charges.
So, which is better for you: a 2 or 5-year fixed mortgage?
Well, it depends on your current circumstances, your future plans, and the changes in the economic climate. We will discuss these with you should you decide to use our services and will explore the mortgage options that are right for you using the up-to-date information that we have received.
Are you likely to move in the next 2 to 5 years? If this is your intention you will need to make sure you have a mortgage that is portable to avoid any early repayment charges.
We will also advise you on how much deposit to put down for a two-year fix or five-year fix deal and will give you advice on how to lower your mortgage costs.
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.
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.