Halifax has introduced an innovative 18-month fixed-rate mortgage, responding to the growing demand for shorter-term deals among borrowers. This unique mortgage option is aimed at homeowners looking to remortgage, especially those who anticipate that interest rates will continue to decrease in the coming years.
The mortgage market typically offers longer fixed-rate terms, such as two, three, five, or even ten years. However, the introduction of this 18-month deal signals a shift in consumer preference, with more borrowers now opting for shorter fixes. This is particularly true of two-year fixed-rate mortgages, which have become increasingly popular as many expect the Bank of England’s base rate to continue to decrease in the near future.
The Bank of England has already made two base rate cuts since August, lowering it from 5.25% to 4.75%. Market analysts and economists predict that this downward trend in rates will likely continue into next year, providing further opportunities for homeowners to take advantage of lower borrowing costs.
For those choosing shorter-term fixed mortgages, the main benefit is the certainty of fixed monthly payments, while still retaining the flexibility to switch to a new deal sooner. This allows homeowners to capitalise on any future rate reductions, making it a favourable option for those who anticipate that interest rates will fall in the near future. The flexibility offered by these shorter-term deals could prove particularly valuable for homeowners who wish to avoid locking into longer-term deals at a potentially higher rate.
Halifax has introduced an unusual 18-month fixed-rate mortgage, available from 28 November 2024. This offer provides borrowers with an opportunity to secure a shorter-term deal than the typical two-year fixed rate, which is increasingly popular among those looking to remortgage.
With this deal, borrowers will have the flexibility to remortgage by the middle of 2026. Given that most home loan offers are valid for six months, those who secure Halifax’s new deal will have the opportunity to lock in a new rate at the start of 2026 or even potentially as early as the end of next year, depending on market conditions.
The 18-month fixed-rate mortgages are priced based on the amount of equity a remortgaging household has in their property. This approach allows Halifax to tailor rates more specifically to individual borrowers, offering a more customised deal for those with varying levels of equity.
Halifax’s cheapest 18-month deal is offered at an interest rate of 4.37 per cent, with a £1,499 product fee. This rate is available for those with at least 40 per cent equity in their home. For a £200,000 mortgage being repaid over 25 years, this would result in monthly payments of £1,097.
This rate is only slightly more expensive than the lowest two-year fixed deals currently available for remortgaging households. Santander and Barclays are both offering their lowest two-year fixes at 4.27 per cent, making the Halifax deal a competitive option for those looking for a shorter-term fix.
Halifax also offers a range of rates depending on the borrower’s equity. For those with 25 per cent equity, the rate is 4.62 per cent; 5.04 per cent for those with 20 per cent equity; and 5.25 per cent for those with 15 per cent equity. All of these options come with the same £1,499 fee, but brokers have indicated that there is also £250 cashback available with some deals.
Amanda Bryden from Halifax commented, “Brokers have told us that their clients are keen to see more shorter-term products. With this latest launch, we’re delivering the certainty of fixed payments balanced with a term that offers more flexibility.”
Mortgage brokers are curious about how the 18-month fixed-rate product will be received by households. Recently, Santander revealed that most of its customers favour two-year fixed-rate mortgages over five-year options, suggesting that the 18-month fix could be an attractive choice for some borrowers seeking shorter-term flexibility.
Nicholas Mendes, mortgage technical manager at John Charcol, commented: “With most competitors offering a two-year fixed as the shortest term, this innovative product gives Halifax an edge in attracting remortgaging clients.”
He continued, “By adding this innovative option to their criteria toolkit, Halifax is clearly positioning itself to attract remortgaging opportunities ahead of competitors.”
Mendes also noted, “This product allows clients to lock in a fixed rate while keeping their options open for a review slightly earlier than the standard two-year term, making it particularly appealing in the current uncertain rate environment. It’s a clever addition to their arsenal, aligning well with the needs of borrowers seeking both security and adaptability.”
Jack Tutton, director at SJ Mortgages, also spoke about the new offering, saying: “This is an intriguing innovation from Halifax, and it will be interesting to see how well it is received.”
With the forecasted base rate reductions for next year, there has been a noticeable increase in the number of people seeking shorter fixed-rate products.
“Many borrowers are not always comfortable with the risks associated with some variable-rate alternatives, which may offer flexibility for a short-term review of the mortgage. It is interesting to note that Halifax has limited this offer to customers looking to remortgage,” said an industry expert.
“This must be a strategic move based on their understanding that current rates are higher than what many homeowners are accustomed to,” they added.
“The 18-month fix will provide borrowers with an opportunity to review their mortgage sooner, in the hope that interest rates will have lowered by then, which could be highly appealing to some.”
Will an 18 month fix pay off?
Whether or not this new mortgage product proves beneficial will depend on how far and how quickly interest rates fall over the next 18 months.
At present, markets are forecasting that the base rate will drop to 4 per cent by the end of next year, down from the current rate of 4.75 per cent.
However, mortgage rate pricing doesn’t directly react to the Bank of England’s interest rates. Instead, mortgage rates tend to preempt anticipated interest rate changes.
As a result, future interest rate cuts by the Bank of England are already factored into fixed-rate mortgage pricing. This explains why the lowest-priced five-year fixed-rate products are currently priced just above 4 per cent, despite the base rate being higher at 4.75 per cent.
If interest rates are cut in line with market forecasts and reach 4 per cent by the end of next year, the mortgage rates available at that time will reflect what markets predict will happen to interest rates further down the line.
For instance, if lenders believe that interest rates will drop to 3 per cent or lower by the end of 2026, the fixed mortgage rates offered could be lower than they are today.
On the other hand, if lenders expect interest rates to remain around 4 per cent, mortgage rates are unlikely to decrease and could potentially rise.
The situation is further complicated by differing forecasts about where interest rates will ultimately settle.
Some of the most optimistic forecasters, such as Goldman Sachs analysts, predict that the base rate could fall as low as 2.75 per cent by the end of next year.
In contrast, economists at Capital Economics believe the base rate will drop to 3.5 per cent by early 2026 before stabilising.
Meanwhile, Santander expects interest rates to remain between 3 per cent and 4 per cent for the foreseeable future.
However, economists at Oxford Economics are predicting that the base rate could eventually fall to 2 per cent by 2027.
It’s important to remember that before the swift base rate rises between December 2021 and August 2023, the lowest mortgage rates typically trended above the base rate. This was the case at least between 2008 and 2022.
The recent trend of the lowest fixed-rate mortgages being below the base rate is therefore a new phenomenon that is unlikely to continue for long.
However, it’s not just about the direction of interest rates; personal circumstances also play a key role.
Ravesh Patel, director and senior mortgage consultant at Reside Mortgages, said: “An 18-month fixed rate can be particularly beneficial in certain scenarios. It may appeal to individuals anticipating potential interest rate cuts in the near future or those planning significant life changes, such as relocating or remortgaging.
By locking in a rate for a shorter period, one can gain some protection against immediate market volatility while maintaining flexibility.”
Chris Sykes, technical director at mortgage broker Private Finance, added: “These deals come with a hefty product fee, so borrowers tempted by these offers should take that into account.
While I’m always in favour of offering more product choices, this could be perfect for someone who expects to move within a year and a half, or anticipates rates falling quickly during this period. That said, it is a bit of a strange product.”
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