Is it time to fix your mortgage?

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The latest news headlines of rising interest rates, the falling pound, and mortgage lenders pulling deals due to rate rise fears are creating a lot of uncertainty, with several of our clients asking us whether they should be fixing their mortgage.

The Bank of England last raised interest rates (to 2.25%) earlier this month, but with inflation still rising and the value of the pound fluctuating, the UK’s central bank could increase the rate again in November. And an interest rate rise could mean higher mortgage rates and repayments. We’ve seen mortgage rates rise in the last few days. If you’re currently on a standard variable rate, a discount rate or a tracker mortgage, your repayments will already have increased and could do so again in the short term if Bank of England rates increase further. So, should you fix?

The answer to that question depends on your circumstances, your attitude to risk and your plans for the future. There’s no definitive answer, but here’s some general guidance.

Fixing your mortgage provides certainty. You’ll be protected against future interest rate rises (during the term of your fix) and have peace of mind that you’ll be able to meet your monthly payments. Most lenders are offering two, three, five and 10-year fixes. The shorter-term fixes tend to be more competitive but can be riskier as they don’t provide much of a buffer. However, two or three-year deals offer more flexibility which is helpful if you plan to move house or think your circumstances might change in the not-too-distant future.

If you don’t plan to move, a longer-term fix might suit you best. A longer-term fixed-rate mortgage means you won’t need to remortgage in the short-term (avoiding arrangement fees) and provides financial certainty for longer.

On the downside, if you’re on a fixed-rate mortgage and the interest rate drops, you won’t benefit from lower monthly payments. Also, fixed-rate mortgages have early repayment charges if you leave early.

The mortgage market is changing daily, with many of the best fixed-rate deals being withdrawn, so if you’re considering moving to a fixed-rate, it’s best to speak to your advisor. For help assessing your options, please get in touch.