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Should you choose a fixed-rate mortgage when your current deal ends?

If your current mortgage deal is coming to an end, you might be unsure whether choosing a fixed-rate mortgage is right for you. Read on to discover the advantages and drawbacks you may want to weigh up.

The Bank of England has increased interest rates to tackle rising inflation 

Over the last two years, the Bank of England’s (BoE) base rate has increased from 0.1% to 5.25% (as of October 2023) in a bid to reduce high levels of inflation. 

According to the Times, experts believe interest rates are nearing their peak. Analysts expect a slight rise to 5.5% by the end of 2023.

However, that may not provide relief for homeowners who are struggling with rising mortgage repayments. Economists expect interest rates to remain around the same level throughout 2024, even as inflation starts to come down. 

So, if your mortgage deal is coming to an end, your repayments could be substantially higher than they were. 

When taking out a new mortgage, one of the choices you’ll need to make is whether to choose a fixed-rate option, where the interest rate you pay will remain the same for a defined period.

The other two common options are a variable- and a tracker-rate mortgage. With both of these types of mortgages, the interest rate could rise and fall.

There are pros and cons of each option and which is right will depend on you. 

A fixed-rate mortgage could provide you with certainty 

One of the main benefits of choosing a fixed-rate mortgage is that you’ll know how much your repayments are throughout the deal, which is often two, three, or five years.

This could provide you with some certainty and can be particularly useful if you’re worried about budgeting. 

As your interest rate will remain the same, you’re protected from rises. So, if the Bank of England increased its interest rate again, you would benefit by having a fixed-rate mortgage in place. 

You wouldn’t benefit if interest rates fell if you had a fixed-rate mortgage

On the other hand, if interest rates fell, you wouldn’t benefit if you had a fixed-rate mortgage. 

While a variable-rate mortgage could increase further, it might also fall. If you choose a fixed-rate option, there’s a chance you could miss out on lower rates if this happened.

In addition, fixed-rate mortgages typically have a higher interest rate than the initial rate of comparable variable-rate mortgages. Even if interest rates remain the same, there’s a chance you could pay more by choosing a fixed-rate mortgage. 

Setting out what’s important to you may help you choose the right mortgage 

While economists predict that interest rates will remain stable over the next year, it’s impossible to guarantee how they’ll change. It’s possible something unexpected could happen that leads to the BoE increasing or decreasing their base interest rate.

As so many factors affect the economy and inflation, focusing on your finances when you’re making a decision about your mortgage may be useful. 

If you’re weighing up whether to choose a fixed- or variable-rate mortgage, start by setting out what’s important to you. 

If you prefer to know what your outgoings will be and would worry if your repayments could change with little notice, a fixed-rate mortgage might be right for you.

However, if you believe interest rates will fall during the term of your mortgage deal and are comfortable with repayments potentially rising, a variable-rate option could be suitable.

Whichever option you choose, searching the market for a lender that suits your needs could help you secure a better deal, which could save you money over the long term. 

Contact us to discuss your mortgage options 

It’s not just the way interest is calculated that’s important when you’re taking out a new mortgage deal. You might also want to consider other factors like the mortgage term, whether you can make overpayments, or the option to borrow more against your home.

Understanding the mortgage market and comparing deals can be difficult, but we’re here to help.

We’ll work with you to understand what your needs are and identify the lenders that could be right for you. Please contact us to arrange a meeting to talk about your mortgage. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

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