Fixed Rate Mortgages

Fixed rate mortgages have an interest rate that remains constant for an agreed duration, typically one to five years.

Unlike a variable rate mortgage, the interest rate charged on fixed rate mortgages will not be influenced by changes in either the Bank of England Base Rate (BoEBR) or the lender’s Standard Variable Rate (SVR).

This can give borrowers the stability they need to manage their household budget more effectively, which is why fixed rate Mortgages are popular with first-time-buyers and young households.

Fixed rate mortgages are also popular during times of historically low interest rates. Many homeowners fix their interest rates while they believe the cost of borrowing is cheap, therefore providing security against potential rate rises.

While fixed rate mortgages provide borrowers with some advantages, there are also several disadvantages.

Fixed rate mortgages are usually more expensive than variable rate mortgages. Due to the inherent interest rate risk, long-term fixed rate loans will tend to be at a higher interest rate than short-term loans. The difference in interest rates between short and long-term loans is known as the yield curve, which generally slopes upward (longer terms are more expensive).

Additionally, once the fixed rate period expires, the interest rate will convert to the lender’s SVR. It is therefore advisable that borrowers assess their remortgage situation before the termination of the fixed rate period.

It is also important to note that most lenders charge an arrangement fee for their fixed rate Mortgage products.

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