Is it better to fix a mortgage for 2 or 5 years?
Most borrowers taking out a mortgage opt for a two or five-year fix. But is it better to fix in for two or five years?
The length of the mortgage rate borrowers take often depends on their attitude to risk. Most people do not want to fix into a higher rate than necessary, especially with multiple banks and economists expecting the Bank of England base rate to come down this year. However, given current global affairs, there is also a chance rates could go up.
With so many homeowners due to remortgage this year and huge numbers of first-time buyers and homemovers set to buy, choosing the right mortgage deal is essential and not necessarily straightforward.
Aaron Strutt, product director at Trinity Financial, says: “Many borrowers want payment security, so they opt for five-year fixes. Those taking two-year deals often suspect rates will come down and think the economy will be in better shape sooner rather than later. I know Trinty's director, Jed Newton, expects rates to decrease over the near term.
“We used to tell many borrowers that when taking a variable or tracker mortgage, they need to be able to afford to take the gamble by opting against the payment security of a fix, and the same almost applies to borrowers taking two-year deals today. Many people don't want to take a five-year fix and then see rates come down, but ultimately, they may give up the chance of longer-term payment security.
"If you can get a two or five-year rate close to 4%, then you are getting pretty decent value for money based on how the market has gone since the Liz Truss mini-budget."
Price gap between two and five-year fixes
There is a relatively small price gap between a two- or five-year fix. It was not long ago that the five-year fixes were much cheaper, but this is not always the case anymore.
Many of the lender's lowest rates tend to be five-year fixes, and they also provide more generous loan sizes when borrowers opt for a five-year fix.
What other mortgage options are there?
There is currently a good choice of mortgage rates. Some lenders offer one-year fixes to new and existing customers. There are also 1.5-year, three-, four-, and ten-year fixes. There are also fixed-for-term mortgages, with between 11 and 40-year fixes, designed to enable some borrowers to secure more generous loan sizes.
More banks and building societies also offer competitively priced Bank of England base rate mortgages, and some do not have early repayment charges.
Are there other reasons to opt for shorter-term fixes or tracker rates?
If you plan to sell your property over the near term, then opting for a longer-term fix may not make sense because of the costs involved in repaying the mortgage early.
If you are a first-time buyer or have a low deposit, it often makes sense to take a short-term fix and assess the market in two years when, hopefully, you have more equity in your home.
If you are not getting on with your partner and worry you may separate or divorce, a shorter-term fix or tracker may also make sense.
Some lenders do not offer any early repayment charge-free rates apart from their expensive standard variable rates. This means tracker rates are a good bet for those needing flexibility potentially to make regular or lump sum overpayments.
Porting your mortgage
If you are considering selling your property and moving up the ladder, you could port your mortgage, provided you meet the lender's new affordability rules. However, if you need to pay it off, you could have higher early repayment charges with a five-year fix.
Call Trinity Financial on 020 7016 0790 to secure a mortgage or book a consultation
The information contained within was correct at the time of publication but is subject to change.
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