Fixed-rate mortgage deals have been getting cheaper in recent weeks, and many experts believe there could be further reductions ahead. Despite the Bank of England’s decision to hold the base rate at 5%, brokers are optimistic that mortgage rates may continue to drop. This presents an important question for homeowners and first-time buyers alike: should you lock in a fixed-rate deal now or wait for potentially lower rates in the future?
Earlier this year, interest rates spiked, pushing two- and five-year fixed-rate mortgage deals for first-time buyers up to 4.82% and 4.45%, respectively. However, since July, those rates have been gradually falling. The cheapest available deals for two-year and five-year fixes are now at 3.99% and 3.77%, offering some relief to those looking to secure a mortgage.
Experts suggest that while these reduced rates are encouraging, there’s still some uncertainty. Mortgage rates could drop further if inflation continues to ease, but they could also stabilise or rise again depending on future economic conditions. This leaves many buyers and homeowners with a tough decision – whether to fix a deal now or take the gamble and wait for potentially better offers down the line.
Additionally, those who opt for a longer fixed term, like a five- or ten-year deal, may benefit from locking in current rates for more extended periods. However, they risk missing out on lower rates in the near future if the trend continues downward.
Overall, the decision to fix your mortgage rate depends on individual circumstances, financial goals, and how much risk you’re willing to take. It’s advisable to consult a mortgage broker for tailored advice.
What’s happening with mortgage rates?
Brokers have identified three key trends in the mortgage market:
- Fixed rates could drop further: According to Aaron Strutt from Trinity Financial, mortgage rates may continue to decrease as the Bank of England is expected to cut the base rate later this year. The money markets have been pricing in these future base rate reductions, allowing lenders to offer more affordable deals. David Hollingworth of L&C Mortgages agreed, noting that if swap rates remain steady, more lenders could offer cheaper fixed-rate options. However, Ray Boulger from John Charcol offered a more cautious view, predicting a temporary pause in rate reductions for the most competitive deals.
- Remortgage deals lag behind: While property purchase rates are becoming more competitive, remortgage rates have not followed suit as quickly. Strutt pointed out that lenders are currently more focused on offering better deals for property purchases than for remortgages. Hollingworth added that while remortgage rates haven’t matched purchase rates yet, some five-year deals dipping below 4% have been well-received by those looking to switch rates.
- Potential for better deals by year-end: Hollingworth mentioned that as the year progresses, lenders may push for more business, which could result in more attractive rates. He suggests that this could especially benefit those seeking new mortgage deals before the year ends.
- Five-year fixes are cheapest – for now: Five-year fixed-rate mortgages are currently the cheapest option, though this might not last. Typically, longer fixed-term rates are more expensive, but over the past couple of years, five-year fixes have often been more affordable than two-year fixes, with even some 10-year deals coming close to two-year rates. Right now, five-year fixed deals are generally cheaper than two-year ones. However, Ray Boulger predicts that future rate cuts will favour two-year deals. David Hollingworth also believes that if the base rate follows the expected downward trend, two-year rates could become more competitive.
Previously, some 10-year fixes were close to or matched two-year rates, but that period seems to have ended. At present, the lowest 10-year fixes are around 0.5 percentage points higher than the best two-year deals, and at least 1 percentage point more expensive than the best five-year fixed-rate options.
Should I wait to get a new mortgage or switch now? And should I fix or track?
If you’re among the 700,000 homeowners with a mortgage deal ending in the second half of 2024, deciding your next steps can be challenging. Here are two options if you want some flexibility:
You could consider switching to a tracker mortgage. Many tracker deals don’t have early repayment charges, so you can move to a fixed-rate mortgage later without penalty. However, tracker rates are variable, meaning your payments can change.
The issue is that tracker rates are currently more expensive than fixed rates. For example, the best two-year tracker for remortgaging is at 5.14%, while the top two-year fixed rate is 4.14%. This difference adds up to about £57 more per month or £680 more per year for every £100,000 borrowed.
To make up for the higher tracker costs, fixed rates would need to drop significantly. While this gap may shrink if the base rate is lowered, fixed rates would still need to improve considerably for this approach to be worthwhile.
Alternatively, you could lock in a new fixed-rate deal in advance. By securing a fix early, you protect yourself from potential rate hikes, and in some cases, you might be able to switch to a cheaper deal before your current rate ends without a fee (check this with your lender). Fixing also provides the benefit of price certainty.
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