Should I Fix My Mortgage Now Or Wait?

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When managing your finances, few decisions carry as much weight as choosing the right mortgage. With the latest inflation figures and economic uncertainties, you might wonder: Should I fix my mortgage now or wait? If you’re approaching the end of your mortgage deal, choosing the best course of action for your financial stability requires careful consideration.

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Here, we’ll explore why switching to a fixed-rate mortgage is worth considering. For personalised advice based on your financial goals and risk tolerance, we can assess market conditions and help you make an informed decision.

Is Now a Good Time to Fix My Mortgage?

If you’re a homeowner with six months or less on your mortgage, now is the best time to choose a fixed deal.

Recent inflation figures have exceeded expectations, with consumer price inflation at 8.7% and core inflation at 6.2%. The Bank Rate is likely to reach 5.5% by the end of the year. This can mean more financial strain unless you secure a fixed rate soon.

The impact of rising inflation is already evident in swap rates, which influence the cost of mortgage borrowing. In June alone, two-year swap rates increased by 0.89%.

If the base rate rises to 5.5%, homeowners on standard variable rates can expect to pay more yearly on their mortgages. For example, if you have a £300,000 loan over a five-year term, you may need to shell out an excess of £1,800 annually on your mortgage.

What Are the Advantages of Fixing My Mortgage Now?

Fixed rates are the most favourable choice for the current market conditions. Here’s why:

1. Predictable Payments

With a fixed interest rate, your monthly repayments remain consistent throughout the mortgage term.

This stability lets you plan your budget more effectively without worrying about sudden payment surges.

2. Shield From Further Rate Increases

Inflation erodes money’s purchasing power over time. Securing a fixed-rate mortgage ensures your housing expenses don’t balloon with inflation.

Regardless of how inflationary pressures affect your other monthly outgoings, you can have peace of mind that your mortgage repayments stay the same for a reasonable time.

3. Long-Term Budgeting

A fixed-rate deal allows for easier long-term financial planning. With a consistent payment plan, allocating funds and setting your financial goals is more straightforward.

4. Protection From Changing Circumstances

Fixed-rate mortgages can safeguard you in case your circumstances change. For instance, you buy a house while working full-time and later transition into self-employment during the term.

Lenders have stricter requirements for self-employed individuals, and you may find it hard to secure a new deal in the future.

Should I Fix for Two Years?

Typically, two-year fixed-rate mortgages have higher interest rates than five-year deals. Over two years, you may pay over three-quarters of a percent more than fixing for five years.

At the end of the term, you’ll need a cheaper mortgage rate than the current five-year offers to compensate for the extra costs incurred in the initial two years. 

Let’s say you owe £100,000 on your mortgage. At 6.75% for 25 years, your monthly repayment will be £691. In two years, you’ll have made £16,584 in payments, plus a set-up fee of around  £1,000.

But if you fix for five years at 6.27%, your repayments will amount to £661. Over the next two years, your total payments will add up to £15,864, saving you £720.

Plus, you won’t have to pay another product fee when you remortgage, bringing your total savings to £1,720. That’s more than two months of mortgage payments!

If interest rates ease off, not being committed to a five-year deal offers flexibility and potentially more savings for the next three years. Yet, this approach involves gambling on future interest rates, and there’s no guarantee rates will drop quickly.

Should I Fix for Five Years?

Inflation is proving to be stickier than expected, showing no sign of going away any time soon. The Bank of England is in a tight spot and may need to raise interest rates for longer.

In even more bad news, the base rate might peak around 6% in mid-2024, the highest since the disastrous “mini-budget.” As there are no significant improvements in sight for short-term mortgage offers, a five-year fixed-rate loan may look more attractive.

Many homeowners are fixing for two years, hoping for lower rates in 2025. However, two-year deals come with higher interest rates and arrangement fees, making the benefits of such an approach modest.

In the meantime, a five-year fixed-rate loan may offer more stability and certainty. Since a mortgage is the largest monthly outgoing for many households, knowing how much you’ll pay in the next five years helps with budgeting.

One risk of five-year fixed rates is the early repayment charges if you pay your mortgage before the term ends. Another drawback is missing out on lower rates while being locked into the deal once the financial market improves.

Should I Fix for Ten Years?

In the past, longer fixed-rate terms came with higher interest rates. While guaranteeing your rate, lenders were taking on the risk of future rate hikes.

But the recent mortgage market turmoil has flipped this trend. Lenders now expect the period of high-interest rates to be temporary, leading them to offer competitive rates on long-term products.

A longer fix entails fewer fees than remortgaging every couple of years in a period of, say, 25 years. It also protects you from changes in lenders’ affordability criteria.

Lastly, with fewer mortgage-related credit checks, you avoid bridging down your score with multiple applications.

Again, long-term fixes can pose a problem if you must leave your mortgage early. You may pay a penalty if you can’t transfer your mortgage to your new home.

Why Are Interest Rates Increasing?

The world’s major central banks are curbing inflation by making borrowing more expensive. Amid the cost-of-living crisis, labour shortages, and sky-rocketing wages, the UK gets the short end of the inflation stick.

While Western economies have endured similar post-pandemic inflation pressures, the UK experiences a slower decline in headline inflation, with core inflation remaining high and continuing to rise.

In June 2023, the Bank of England implemented a 50 basis points increase, equal to a 0.5% change in interest rates. This super-hike marks the 13th consecutive increase since the tail-end of 2021, taking the base rate from 0.1% to 5%. 

Policymakers grapple with persistent inflation while avoiding a full-blown mortgage crisis. Money tightening could mean more interest rate hikes in the coming months.

How Can I Reduce My Mortgage Costs?

Many banks have noticed an uptick in late payments because of the rising interest rates. However, many homeowners still locked into previous mortgage deals have yet to face the full impact of higher borrowing costs.

Worried homeowners are seeking solutions to reduce their mortgage expenses. Regrettably, there’s little you can do to bring down your monthly repayments.

If you’re struggling to make your mortgage payments, contact your lender immediately. They can guide you on how you can stretch your mortgage budget. Remember that asking for help from your lender won’t hurt your credit rating.

To give you an idea, here are some options that may be available to you:

1. Mortgage Payment Holiday:

One way your lender can help ease your financial situation is by setting you up on a mortgage payment break or holiday. That way, you won’t have to make regular mortgage payments for a specified period. But remember that you must pay off your outstanding amount eventually.

After the holiday, your lender may provide options for managing the missed payments. They can spread the deferred payments plus accrued interest over the remaining mortgage term, increasing your monthly repayments.

They can also propose extending your mortgage term, with extra payments added to the end of the period.

While a payment holiday offers temporary respite, it’s crucial to consider the long-term implications. By deferring payments, you may pay more interest over the extended duration.

2. Interest-Only Repayments

In this arrangement, you’ll only pay the interest for a certain period. Nowadays, many lenders can switch you up with interest-only payments for six months to deal with rising interest rates.

Interest-only mortgages were quite popular before the 2008 financial crisis. However, many borrowers ended up with larger loans than they could afford. They’ve made a comeback in recent years, but lenders are now more selective about who they offer these mortgages to.

You may qualify for an interest-only mortgage with a strong payment history, significant home equity, and a solid repayment plan.

You can also apply for a part-interest-only deal to increase your chances of getting approved. This option is where a part of the mortgage is on interest-only terms, and the rest is on repayment terms.

3. Extending the Mortgage Term

Extending your mortgage term means you’ll have lower monthly repayments, but for a longer period. On the downside, you’ll pay more interest over the life of the loan.

Keep in mind that age is a factor when applying for an extension. For instance, some lenders will allow you to extend your mortgage to your 75th birthday or until retirement, whichever comes sooner.

4. Support for Mortgage Interest

During these challenging times, the Department for Work and Pensions can provide some relief through the Support for Mortgage Interest (SMI). This programme is a secured loan against your home.

SMI can assist you in paying the interest on up to £200,000 of your mortgage. If you are on Pension Credit or started receiving another qualifying benefit before January 2009, the cap for the mortgage capital is £100,000.

You won’t get a lump sum, but the department will pay your mortgage interest directly to your lender. You can repay your SMI loan with interest when you sell or transfer your home to another owner.

But what if there’s not enough money left after paying off your mortgage from the sale of your home? If so, you won’t have to repay the total amount of your SMI loan, and any remaining balance will be written off.

Alternatively, you can pay back sooner through voluntary repayments.

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Frequently Asked Questions

Why Are So Many Mortgage Deals Being Pulled Out?

Central banks increase interest rates to reduce consumer spending and investment during inflation. Unfortunately, this takes a significant toll on the mortgage market.

The sharp increase in interest rates has prompted lenders to pull out deals and reprice offerings at higher rates.

How Long Should I Fix My Mortgage For?

There’s no cut-and-dry answer to how long you should fix your mortgage for. This decision has as much to do with your financial circumstances as interest rates.

If you have limited disposable income and prefer the stability of consistent monthly payments, fixing for a longer term may be more suitable.

Now, if you have more flexibility in your budget and are comfortable with interest fluctuations, you should do fine with a short-term fix. 

What Is the Average Interest Rate for Fixed-Rate Mortgages?

Fresh data shows that average interest rates have increased to 6.75% for two-year fixed loans and 6.27% for five-year deals.

These figures have already breached current market projections suggesting the average rate of a two-year fixed loan could reach 6.5% before the year ends. The expectation is that interest rates will remain elevated and won’t fall below 4.5% until 2027.

The next update for the base rate is in August 2023, so you can expect more changes in the coming months.

Will Mortgage Rates Go Down in 2023?

The future of mortgage rates depends on the trajectory of inflation and what the Bank of England does about it.

It’s possible that rates will go down if inflation improves. Otherwise, average rates could reach 7% pretty quickly with how things look.

Should I Fix My Mortgage Now Or Wait Summary

The mortgage market has hit rock bottom, and the years of cheap 2% interest rates may well be over. The cost of living crisis is forcing families to tighten their purse strings. If rates continue to move in sync with market expectations, the mortgage crunch will further squeeze budgets.

If you’re still wondering whether to fix your mortgage now or wait, we recommend going with fixed rates ASAP.

Our team of mortgage professionals are here to help you navigate these challenging times. With our knowledge of the mortgage market, we can find solutions tailored to your specific needs.

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Emma Jones
Emma Jones
Emma began her career in Lloyds Banking Group, first in the unsecured & secured loans department at Halifax and later as a mortgage advisor at Lloyds. During 9 years in these roles and a further 2 years at Yorkshire Building Society, Emma was able to observe the impact of the recession, and how the banks let their customers down by denying loans and mortgages. Wanting to be a driving force for change, she stepped into a market advice role where she has been able to help clients when others couldn’t. Identifying a gap in the mortgage space, Emma went on to establish When the Bank Says No. As a keen property investor, she has been the focus of features in publications including The Sunday Times and This is Money. Emma’s greatest joy is overcoming the low expectations of their customers, many of whom have all but given up on getting a mortgage due. One thing Emma has learned through her own personal struggles is every client must be treated like a human and understood better by advisors and lenders in the industry. “We all have to navigate life events which can ultimately impact your financial status. It shouldn’t mean dreams of homeownership or business growth should have the breaks applied”. Emma and her team’s passion for helping people overcome the challenges they may face when applying for a mortgage have fuelled the success of When the Bank Says No.

Our Customers rate us 4.6 out of 5


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Speak to one of our expert advisors.