Helen Crane and her partner bought their first home nearly two years ago, a milestone that has prompted her to reflect on the advice they received when taking out their first mortgage. In summer 2024, they opted for a five-year fix, despite being told that interest rates were certain to fall.
At the time, inflation was decreasing from its peak during the cost of living crisis, and Bank of England interest rate cuts were considered likely. As a result, two-year deals were more popular, although they were more expensive. Crane’s financially savvy friend and broker both advised her to choose the shorter option, which would have given the broker an opportunity to earn more fees from frequent remortgaging.
However, Crane decided on the five-year fix because it would save her and her partner around £100 per month. She also did not want to pay hefty arrangement fees, which can reach over £1,500, every two years. Just weeks after they fixed their mortgage at 4.8 percent, the Bank of England cut the base rate, causing mortgage rates to drop.
Crane initially regretted her decision, calculating that she could have saved £50-£100 per month if she had waited to buy her flat. But two years on, she is pleased to report that the mortgage rates have worked in her favor. If she were to remortgage today on the same terms, the cheapest two-year fix would be 5.19 percent, resulting in £103 higher monthly payments.
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Mortgage Rate Trends
Crane notes that while it is impossible to predict interest rates and inflation with certainty, she believes that the era of slow and steady mortgage rates has begun. Her colleague Ed Magnus recently wrote about the challenges faced by homeowners who took out mortgages in 2021 and 2022 and are now facing much higher rates, rolling off 1 percent fixes to current rates of 5 percent.
When choosing between a two and five-year fix, Crane advises considering three key questions: what does it cost, will you move house soon, and can you be bothered with the effort of remortgaging. The cost of arrangement fees, which can reach over £1,500, and the potential for early repayment fees if you need to move house, are important factors to consider.
The penalty for forgetting to remortgage in time can be high, with lenders imposing standard variable rates of up to 7 percent. If the difference in monthly payments is minimal, a five-year fix might be the better option, offering an easier life with less hassle. Crane’s own experience has shown that fixing for five years has paid off, saving her and her partner money in the long run.
Considering Mortgage Options
A writer who took out a five-year fix in 2024 notes that arrangement fees can reach over £1,500 on some mortgages, making it important to consider these costs when choosing between a two and five-year fix.
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Additionally, early repayment fees can be imposed if a homeowner needs to move and get a new mortgage after taking out a five-year fix, with these fees often ranging from 1 percent to 5 percent of the whole mortgage amount.
Have you been lucky or unlucky with fixing your mortgage, and how do you decide? Let me know: [email protected]
How to find a new mortgage Mortgage rates have jumped as conflict with Iran has driven up inflation expectations and dashed hopes of interest rate cuts.If you need a mortgage because you are buying a home, or your current fixed rate deal is due to end, you should explore your options as soon as possible.
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