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Is it time to fix your mortgage?

17th December 2021

For most people, our mortgage is the biggest financial commitment we make.

And with interest rates potentially set to rise, the cost of repayments could be about to go up for millions of homeowners.

One way to avoid an unexpected hike in your monthly payment is to fix your mortgage rate.

But what is a fixed rate mortgage, how do you get one, and is it right for you?

This simple guide to fixed rate mortgages will give you the confidence to decide if it’s time to fix your mortgage, and the next steps to take.

Why are so many people thinking about fixing their mortgage rate at the moment?

How many of us switch off when they start talking about the economy on the news?

But while deficits, growth figures and GDP can be hard to get your head around, there are some economic figures that have a direct impact on your everyday life.

And two of them are very much in the headlines at the moment - inflation and interest rates.

Inflation measures the rise in the cost of living, which is surging at its fastest pace in 10 years, with prices going up by 4.2% in the year to October 2021.

This has an impact on everything from your gas bill to your weekly shop and the cost of filling up your car.

One way the Bank of England can attempt to bring inflation down is by raising its interest rate, which affects how much you can earn on your savings, and how much you pay on anything you borrow, such as your mortgage.

Rates have been at historic low levels since 2009, when the Bank of England cut its base rate to 0.5%. It was cut further to 0.1% in 2020 during the pandemic.

And now with inflation surging, there is an expectation that the base rate will rise in the coming months, although this cannot be predicted with any certainty.

What is a fixed rate mortgage?

There are three main types of mortgage interest rate.

A fixed rate mortgage guarantees your interest rate for a set period of time, regardless of any changes to the base rate.

Standard variable rate is set by your lender and is what you will pay at the end of any introductory offer. The lender can change the rate at any time and is likely to do so if the Bank of England base rate changes.

A tracker mortgage is set by your lender at a fixed amount above the Bank of England base rate. When that rises or falls, your mortgage rate will follow suit automatically.

How long can I fix my mortgage for?

The most common fixed terms are two, three and five years, although you can fix your mortgage for up to ten years with a range of lenders, including TSB. Terms of 15 years and above are also available from some lenders, but they are rare.

Generally speaking, the shorter the fixed term, the lower the rate - there is a price to pay for the certainty of fixing your payments for ten years.

A shorter fixed term also means you have the flexibility to switch to a better mortgage deal sooner if rates fall.

For example, if you had taken out a ten-year fixed rate in July 2007, your mortgage would have been based on a Bank of England rate of 5.75%. By March 2009, that rate had been cut to 0.5%.

If rates had risen by a similar amount you would have been in a much better position.

However, it is impossible to predict movements in the interest rate, especially over the longer term.

Should I choose a fixed-rate mortgage?

The type of mortgage that is best for you depends on your circumstances.

For many people, the certainty of fixing their mortgage rate for a period of time gives them the confidence to make a budget and know it won’t be impacted by an unexpected hike in their monthly mortgage payment.

However, there can be a fee for a fixed rate mortgage, so make sure you factor that into any calculations you make. For example, if you remortgage every two years, paying a £999 fee each time, it will add up to £10,989 over a 24-year mortgage term.

You should also be aware of any charges that may apply for switching from a fixed rate mortgage before the end of the agreed term - whether for a better deal, or to move house.  There may also be charges that may apply for repaying all or part of your mortgage during the fixed rate term. These are commonly referred to as early repayment charges.

Make sure you factor all of these elements in when you consider whether to fix your rate, and for how long.

For example, if you are planning to move home in five years, it may not be a good idea to take out a mortgage with a 10-year fixed rate, unless you can transfer the mortgage to a different property.

TSB’s Fix and Flex mortgages let you fix a rate for five years, but leave after three, So you could fix a rate for five years, but leave after three without incurring an early repayment charge.  Or fix for 10 years with the freedom to switch after five. There is no product fee, and you can repay up to 10% of the outstanding balance each year without incurring an early repayment charge.

18+ and UK resident only. Subject to status and lending criteria.

Your home may be repossessed if you do not keep up repayments on your mortgage.

How do I find the best fixed rate mortgage deals?

There are lots of tools and services to help you find the most competitive deals. But make sure you take any fees into account when you are working out the total cost of your mortgage. And be aware that headline rates on comparison sites may not be available to you, depending on the size of your deposit, or how much equity you have in your home.

TSB’s mortgage calculator will give you an indication of how much you could borrow, and what fixed rate mortgages the bank may offer you.

More information on mortgages - from jargon busters and FAQs, to stamp duty guides and landlord checklists can be found through TSB’s mortgage guide.

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