Fixed-rate mortgages are the most popular type of mortgage in the UK, but how do they function, how can you secure the best deal, and what other options are available? In our guide to fixed-rate mortgages, we cover these questions and more to help you make an informed decision.
What is a fixed-rate mortgage?
A fixed-rate mortgage offers an introductory period during which borrowers can lock in a set interest rate, ensuring consistent, lower repayments throughout this time. These initial periods typically last between 2 and 10 years, though shorter and longer terms are also available.
Once the introductory period ends, the borrower usually moves onto their lender’s standard variable rate (SVR), which is almost always higher. However, this can be avoided by securing a new deal with either the current lender or a new one.
While locked into a fixed-rate agreement, your mortgage rate remains unchanged, protecting you from sudden increases that may occur during periods of economic uncertainty. However, there may be some restrictions during this period, such as limits on the amount of overpayments you can make.
It can also be more challenging to make changes to your mortgage while in a fixed-rate period, and if you need to remortgage during this time, early repayment charges may apply.
How long can you fix in for?
Most lenders offer standard fixed-rate deals for two, three, and five years, but longer-term fixes of 10 years or more are also available, though less common.
The longest fixed-rate mortgage terms in the UK range from 30 to 40 years. While these longer terms are primarily offered by specialist mortgage providers, some high street lenders also have options for extended fixes.
On the other hand, a few lenders offer one-year fixed-rate deals for borrowers seeking short-term arrangements, though these are typically limited to existing customers.
What happens when the introductory rate period ends?
Most mortgage lenders will contact their customers at least six months before a fixed-rate period is set to expire, offering the option to lock into a new deal. If you don’t secure a new deal with either your current lender or a new one, you will automatically move to your lender’s standard variable rate (SVR).
If you transition to an SVR, your mortgage repayments are likely to be higher than they were under your fixed-rate deal, or than they would be if you locked into another fixed rate. However, being on an SVR provides flexibility, allowing you to make unlimited overpayments or pay off your mortgage entirely without incurring early repayment charges.
Options to consider
As you approach the end of a fixed-rate period, you have the following options:
- Renew your mortgage with your current lender
- Secure a new deal with a different lender
- Revert to your lender’s standard variable rate (SVR)
If you opt for a new deal, it doesn’t have to be another fixed-rate mortgage. You could explore alternative products, with variable-rate mortgages being the most common option.
You can also make other changes to your mortgage, such as switching from a capital repayment agreement to an interest-only mortgage, or vice versa.
Given the variety of options and the wide range of fixed-rate and variable mortgages on the market, it’s advisable to speak with a mortgage broker as you near the end of your introductory period. They can help review your choices, provide tailored advice on the best option for your circumstances, and may even secure you an exclusive interest rate.
What is the best fixed-rate mortgage deal right now?
The "best" or "cheapest" fixed-rate mortgage deal will vary depending on individual circumstances. Lenders determine your eligibility based on factors like your deposit size (loan-to-value ratio), credit history, and the specific fixed-rate product you choose.
Currently, fixed-rate mortgage rates are trending downwards after peaking following the UK Government’s Mini-Budget in September 2022.
To improve your chances of securing a lower fixed-rate mortgage, consider the following:
- Save up extra deposit: The best rates often become available with around 60% loan-to-value (LTV), but the larger your deposit, the better the deal you may receive.
- Explore different product types: Shorter fixed-rate deals usually come with lower rates, but it’s important to choose a mortgage product that suits your long-term needs. Mortgages with an upfront product fee typically offer lower rates than fee-free options.
- Optimise your credit reports: You can check your credit reports by signing up for a free trial on Checkmyfile. Correcting any errors or outdated information can improve your credit score and enhance your chances of securing a better mortgage rate.
- Speak to a mortgage broker: Brokers can provide personalised advice on securing the best fixed-rate mortgage for your situation and may have access to exclusive rates not available to the public.
Which lenders offer fixed-rate mortgages?
All UK mortgage lenders offer fixed-rate mortgages, as this is the most popular product type. However, some providers have a broader selection of deals than others. Here are examples of fixed-rate mortgage products available from UK lenders:
- HSBC: Offers a variety of 2, 3, and 5-year fixed-rate mortgages, though its 10-year fixed deals are limited to remortgages and existing customers.
- Nationwide: Provides a wide range of 2, 3, 5, and 10-year fixed-rate mortgages, with 10-year fixes available to both first-time buyers and remortgage customers.
- NatWest: Primarily offers 2 and 5-year fixed-rate mortgages.
- Halifax: Features 2, 5, and 10-year fixed-rate deals, with some remortgage options offering a 3-year fix.
- Kensington: In addition to standard fixed terms, Kensington offers up to 40-year fixes. Its 'Flexi Fixed For Term' products include introductory periods ranging from 11 to 40 years.
- Santander: Provides a selection of 2, 3, and 5-year fixed-rate mortgages.
- Barclays: One of the few lenders offering 1-year fixes (for existing customers only), along with 2, 3, 5, and 10-year fixes, as well as 2-year tracker mortgages.
These examples highlight the variety of fixed-rate terms available from UK lenders, with options suited to different needs.
Alternatives to consider
The main alternatives to fixed-rate mortgages are the various types of variable-rate mortgages, including tracker mortgages and discount rate mortgages.
-
Tracker mortgages: With a tracker mortgage, your interest rate is linked to an external benchmark, typically the Bank of England's base rate. The rate you pay can fluctuate in line with this benchmark during the term, generally staying a fraction of a percentage point higher. Tracker mortgage rates apply during an introductory period (usually around two years) before reverting to a standard variable rate (SVR).
-
Discount rate mortgages: These work similarly to fixed-rate mortgages, offering a discounted rate for a set period, usually two or three years, before moving to the lender’s SVR. The discount is a reduction on the SVR, so while the initial payments will be lower than the SVR, they can still vary if the SVR changes, even during the discounted period.
For remortgage borrowers, another option besides taking a new fixed-rate deal is to switch to the lender’s SVR. While not usually ideal, some consider this temporarily to make unlimited overpayments or if they plan to pay off the remaining mortgage balance in full.
Advantages and disadvantages
Below is a table outlining the main pros and cons of fixed-rate mortgages, which can help you determine if this option suits your needs and circumstances:
|
ADVANTAGES |
DISADVANTAGES |
|
Consistency - your mortgage payments will remain the same throughout the initial rates period, making it easier to plan and budget |
Less flexible - there are more restrictions on things like overpayments and paying your mortgage off early compared to variable deals |
|
Protection - your mortgage repayments cannot go up while you are fixed in, meaning you are shielded from interest rate spikes |
Miss out on rate reductions - variable rate mortgage holders feel the benefit straight away if interest rates suddenly drop, but you cannot take advantage of this when fixed in |
|
Product choice - there are a wider range of options compared to variable rate mortgages, with more products available across a variety of different initial rates periods |
Market uncertainty - Locking yourself into a fixed deal may not bring peace of mind in a volatile market where interest rates are declining or are forecast to decline |
Frequently Asked Questions
Lenders now allow borrowers to secure an interest rate up to six months in advance, but you can start exploring fixed-rate deals earlier. While your lender may be open to discussing potential deals ahead of time, it's important to remember that any agreement in principle is not legally binding and may be subject to change depending on circumstances.