Fixed rate mortgages

If you’re a first-time buyer or are remortgaging, this guide explains what fixed interest rates are and how a predicted rise in rates could affect you.

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If you’re a first-time buyer or a remortgager this guide explains what fixed interest rates are and how a predicted rise in rates could affect you.

Interest rates remain remarkably low, for now.

The Financial Times reports that the BoE (The Bank of England) have signaled ‘modest tightening’ of their monetary policy in the next 2 years, suggesting that interest rates won’t remain at 0.1% for long.

Could now be a good time for first-time buyers and remortgagers to lock in low rates and if so, how long for?

We answer all this and more in this guide. Here’s what’s covered:
  • Will interest rates for mortgages go up soon?
  • How much will interest rates go up?
  • What is a fixed interest rate mortgage?
  • How does a fixed-interest rate mortgage work?
  • What’s a standard variable rate for a fixed-rate mortgage?
  • How long does a fixed interest period last for a mortgage?
  • How long should I fix my interest rate on my mortgage?
  • Is a mortgage with a longer fixed-rate period more expensive?
  • How much will a fixed-rate mortgage cost me?
  • Do fixed interest rate mortgages have higher fees?
  • Can I overpay my fixed-rate mortgage?
  • Advantages & disadvantages of a fixed rate mortgages
  • Can a first-time buyer get a fixed interest rate mortgage?
  • Should I remortgage before interest rates go up?
  • Fixed-rate mortgage advice
  • Fixed-rate mortgages: FAQs

Will interest rates for mortgages go up soon?

  • Interest rates are likely to rise sooner than anticipated as inflation climbs towards 4%.
  • When inflation rises too quickly, money reduces in value but prices rise for goods like food, petrol, and clothes.
  • A small amount of inflation can be a sign of a healthy economy. But if inflation quickly increases and wages don’t increase in line with the rise, that can leave people out of pocket.
  • Some economists are now expecting the first rise in UK interest rates next year
  • To combat inflation, central banks, like the BoE, may decide to increase the base rate, which is the interest rate that banks and lenders follow. If the base rate goes up, interest rates go up too.

How much will interest rates go up?

The central bank’s Monetary Policy Committee (MPC) met on the 4th of August 2021 and decided that economic conditions had been met to allow it to start discussing raising interest rates in the future. However, out of the 8 members, 7 voted to keep rates at 0.1% for now.

Andrew Bailey, the BoE governor, thinks that the period of inflation is temporary but noted that the MPC takes the risk of persistently higher inflation very seriously.

That being said, the BoE’s forecasts showed only very gradual interest rate rises were likely to be necessary to keep inflation close to its medium-term target of 2%.
  • The first increase to about 0.3% is likely to come in 2023.
  • Rates are then predicted to reach 0.6% in 2024.

What is a fixed interest rate mortgage?

A fixed interest rate mortgage is charged with an unchanging rate for a fixed period of time.

Interest is what’s charged on your mortgage, so securing a deal with low interest means that you pay less money for your loan.

Having a fixed interest rate can be a good thing if you have a mortgage because it means that you know exactly how much your repayments are for a given time period. If rates are low, like they are now, it also means that you can lock in a good interest rate, before they increase.

Interest on a fixed-rate mortgage doesn’t stay fixed forever though because each agreement has a fixed interest rate period. Once the fixed-rate period ends, the lender charges its standard variable rate, which is usually higher.

How does a fixed-interest rate mortgage work?

A fixed interest rate mortgage lender agrees to provide a mortgage and charge a specified rate of interest, for a given time period. During that period, the rate of interest never changes. To understand how a fixed interest rate mortgage works, it can be helpful to know how interest rates are set and why they go up and down.

Mortgage rates and the Bank of England

UK lenders use the central Bank of England’s base rate to set their own rates. The base rate is what they’re charged to borrow from the central bank.

Lenders, like mortgage lenders or credit card companies, charge interest on top of this when providing finance because they take on the risk that you might not repay it.

If you take out a fixed interest rate mortgage and lock in a low rate, you take away the lender’s ability to charge you more interest, in the event that the base rate changes and they’re charged more to borrow from the BoE.

So, if interest rates rise, your repayments remain unchanged, while people with a mortgage that has a variable interest rate, such as a tracker or discount mortgage, pay more.
That is of course until your fixed-rate period ends and it reverts to the lender’s standard variable rate (SVR).

What’s a standard variable rate for a fixed-rate mortgage?

If you don’t remortgage before your fixed-rate period ends, either with the same lender on a different deal or a new lender completely, you’ll have to pay your lender’s standard variable rate.

These rates are usually a lot higher, which is why securing a fixed rate for a longer period of time can be a good thing.

For example, say the base rate is 0.1% and your chosen mortgage lender charges an additional 2% on top of that for their mortgage product. Hypothetically, you could secure that 2,1% rate for 2 years on a 25-year mortgage for £100,000.

That means for 2 years, your mortgage repayments never change, costing you £429 per month.

After those two years, your fixed interest period would end and you’d be transferred to your lender's standard variable rate. For this example, the SVR rises to 4% and as a result, your mortgage repayments would increase to £528.

An increase of interest means you’re being charged a bigger amount to borrow, so the increased interest payments wouldn’t reduce the capital of your mortgage, i.e. the amount you borrowed.

How long does a fixed interest period last for a mortgage?

Usually, mortgage lenders offer fixed-rate periods ranging between 1-5 years, though a handful of UK mortgage lenders may be willing to provide a fixed-rate mortgage for up to 15 years.

Keep in mind that mortgage products with long fixed rates may only be offered to borrowers who present a very low risk of defaulting on their mortgage and therefore, you will need to meet eligibility criteria which may require you to have no or low bad credit, a good credit score and/or a larger deposit.

While securing an interest rate for a long period of time can be helpful to borrowers who want to benefit from the predictability of their repayments, usually, the longer the fixed-rate period, the higher the interest rate and the tighter the lending restrictions.

How long should I fix my interest rate on my mortgage?

Shorter fixed-rate mortgages can offer you more flexibility to hop from different mortgage providers in order to seek out the cheapest deals. Remortgaging can cost money though and without a broker, it can feel like a hassle.

That’s why some people either have an appointed broker to manage their mortgage over the years or they find a fixed interest rate mortgage with a longer fixed period so their repayments stay the same for a longer block of time and therefore, they don’t have to shop around over the years.

Is a mortgage with a longer fixed-rate period more expensive?

Not always, however, mortgages that have a longer fixed-rate period can be more expensive overall because you (the borrower) avoid any change to your repayments in the event that interest rates increase or decrease.

This security can come at a cost and as a general rule of thumb, the longer the fixed-rate period, the higher the interest.

Fixed interest rate period in years

Fixed interest charged

Mortgage repayments for £100,000 based on a 25-year term

The standard variable rate charged once the fixed period ends

Mortgage repayments for £100,000 based on a 25-year term


























The above example assumes that a standard variable rate is higher than a fixed interest rate but remember, a variable rate can go up and down.

Standard variable rates vs fixed interest rates

If you don’t remortgage once your fixed-rate period ends and you start paying your lender’s SVR, it will likely be higher and you run the risk that rates will increase further and you’ll pay even more.
However, because that rate won’t be fixed and will follow the BoE base rate, you could also benefit from a decrease in rates as your monthly repayments would go down.

Using the same example as above, if the SVR were to fall to 2%, your monthly repayments could decrease to £424.

Staying on your lender’s SVR might not always cost you more but it does leave you open to the risk of rates going up and you suddenly having to pay more. This uncertainty is what makes many people opt for a fixed rate.

How much will a fixed-rate mortgage cost me?

The figures in the table above are purely given as an example and are not representative of current mortgage products. Rates vary massively between lenders, so for specific rates based on your unique circumstances, speak to a mortgage broker.

They’ll have access to a network of lenders and can quickly navigate through them to find you the very best fixed interest rates based on your circumstances.

Once your broker knows exactly what your ambitions are for homeownership and what level of flexibility you require in your contract, they can look specifically for those lenders and present you with an accurate cost rather than you base your decision on estimations.

That’s what makes a broker’s advice so invaluable.

Do fixed interest rate mortgages have higher fees?

Unfortunately, some lenders charge high upfront costs or larger early repayment charges to compensate for the low rates.

High early repayment fees could prevent you from making overpayments on your mortgage because the cost of the fee can sometimes outweigh any financial gain made from reducing your overall loan size.

While the initial savings made by securing a low-interest rate can be advantageous, always calculate that against any fees that are associated with the agreement.

Check the fees for a fixed rate interest mortgage

Don’t get caught out by a lender offering a competitive fixed-rate mortgage only to be stung with high fees.

Mortgage lenders should always clearly outline any fees that may be charged during the process of getting a mortgage or during the actual agreement and these may be referred to as:
  • Exit fees: Charged to a borrower leaving a mortgage agreement early.
  • Early repayment fees: Charged to a borrower repaying part or all of their mortgage early.
  • Mortgage arrangement fee: Charged by the lender to arrange the mortgage
  • Valuation fee - Charged by the lender to confirm you’re paying the correct amount for your property.
  • Conveyancing fee - Charged by your chosen solicitor to prepare and check the legal documentation involved with a mortgage.
  • Survey fee - You don’t have to get a survey for your property but it helps flag up any damage or issues that could cost you later down the line.

Advantages & disadvantages of a fixed rate mortgages

What are the benefits of a fixed-rate mortgage?

  • You know for certain how much your mortgage repayments are, until the fixed period ends.
  • Fixed-rate mortgage periods vary between 1-15 years giving you plenty of choices.
  • Fixed-rate, low-interest mortgage agreements can give you peace of mind because even if the base rate changes and rates rise, your monthly mortgage repayments don’t go up.
  • When interest rates are low, fixed-rate mortgages can be cheaper as there is less demand. That is of course until rate rises are on the horizon and demand increases.

What are the drawbacks of a fixed-rate mortgage?

  • If you lock in an interest rate when rates are high, you could miss out on the savings made if/when they fall again.
  • When interest rates are high, fixed-rate mortgages can be more expensive, as more people will likely want to lock in a rate and avoid further increases to their mortgage repayments.
  • When interest rates are high, qualifying for a loan can be more difficult depending on your circumstances because the payments are less affordable.
  • When your fixed-rate period ends, your lender will transfer you onto their standard-variable-rate (SVR) mortgage and this can be higher.
  • Some fixed-rate mortgage lenders offer low fixed rates but have high mortgage fees and this can outweigh the benefit of the low rate.
  • Some fixed-rate mortgage agreements have high early repayment fees or exit fees, which can make repaying or leaving the contract early expensive.

Can a first-time buyer get a fixed interest rate mortgage?

Yes, there are mortgage lenders in the UK that provide fixed-rate mortgages to first-time buyers and if you’re eligible for one of these products, it may be worth considering locking in a low rate before they are predicted to rise in 2022.

Predictions are just that though, predictions. So always bear in mind that while you may secure a low rate now to avoid a nasty hike in the near future, interest rates may stay as they are or decrease. No economist can predict the future, so weigh up all the factors that could affect how much you pay for your mortgage, as well as the conditions for which you have to repay.

2021 has seen house prices rise by up to 10% in some areas and while that’s not good news for first-time buyers on a budget, there are new and improved schemes like Shared Ownership and the First Homes Programme that can help to reduce the cost of homeownership.

If you’re keen to get a house this year and take advantage of low-interest rates before they might rise, check your eligibility for a wide range of fixed-rate mortgages with a broker and get the ball rolling.

Should I remortgage before interest rates go up?

If rates do increase as a result of the Bank of England increasing the base rate, lots of people on mortgage agreements with a variable rate will experience a price rise for their mortgage.

Remortgaging while rates are still low could prevent this sudden shock, saving you money that you would otherwise be paying in interest.

Some mortgage agreements have exit fees or early repayments fees, so calculate the cost of those fees against any savings made from switching to a cheaper deal.

It can also be really helpful to look at your current mortgage payment and work out how much it would increase if you don’t remortgage and rates do rise, by say, 0.1, 0.2, 0.3 etc.

If maths isn’t your thing or you’d just prefer to have an exact and accurate figure, speak to a remortgage expert who can calculate this for you and then present you with the best options based on your circumstances.

Advice about fixed-rate mortgages

Getting a mortgage, whether it’s with a fixed or variable rate, is a big decision that affects your financial future. While rates are forecasted to rise and you may be tempted to lock in a low deal, always compare the rest of the market so you know you’re getting the best deal for you.

A fixed-rate mortgage can look appealing when compared against other products but factors like fees and flexibility to repay early should be considered too because ultimately, these things affect the cost of your mortgage overall.

Work with a reviewed mortgage broker, take your time and enjoy the process. Buying a home or a house to invest in should be a milestone to be proud of, so try not to get too bogged down with the stresses of comparing contracts and rates - that’s what your broker is for!

Fixed-rate mortgages: FAQs

Who is the best fixed-rate mortgage provider?

Securing a cheap interest rate for a mortgage means that for a set period of time, you don’t have to worry about interest rate rises as your mortgage payments won’t be affected. Lots of lenders in the UK provide mortgages under this type of agreement but they each have their own criteria that they’ll require borrowers to meet.

There’s a lot of variation between lender agreements and what they expect from borrowers, for example, one lender might require a higher deposit for a low fixed interest rate mortgage while another may still accept a 5% deposit.

Your own circumstances greatly impact your ability to get approved for a mortgage with a fixed rate, so to find the best one for you specifically, ask a mortgage broker.

Can I overpay my fixed-rate mortgage?

Some fixed interest rate mortgage lenders do allow their borrowers to overpay at least 10% of their mortgage early, per year, without being penalised with an early repayment charge.

This will depend on the lender though as each one will have different rules about overpaying.

Generally speaking, lenders don’t like borrowers to repay early because that decreases the amount they pay in interest. However with so many lenders in the UK, each competing with another, some agreements do include this option.

To find these lenders and compare all factors that affect the overall cost of a mortgage work with a qualified mortgage broker with genuine reviews from people they’ve helped.

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