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Best Mortgage Rates Five-Year Fixed Deals

All you need to know about five-year fixed-term mortgages

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1Annual saving based on re-mortgaging £205,335 from the highest big 6 lender standard variable rate at 7.49% to a 5 year fixed rate of 3.94%. LTV 50%, less fees (£999). Details correct as at 24th February 2023.

Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.

What is a five-year fixed-rate mortgage?

In a nutshell, a five-year fixed-rate mortgage is a specific type of long-term loan where both your monthly repayments and interest rates will remain untouched for five years. Whatever happens to the Bank of England’s base rate, which influences the rise or fall of mortgage interest rates, your plan will not be affected during your five-year plan.

As you near the end of your five-year period, you should generally be able to take out a new fixed-rate or variable-rate deal without being charged. But if you don’t act, you’ll be moved onto your lender’s standard variable rate (SVR), which is higher than that of a fixed-rate mortgage. Therefore, to save money, you may want to consider remortgaging before the SVR kicks in.

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What are the pros and cons of a five-year fixed-rate mortgage?

As with everything, five-year fixed-rate mortgages come with their very own set of advantages and drawbacks. Everyone has their own specific needs and requirements, and a five-year fixed deal may (or may not) be the solution you’re looking for.

Here are some of the pros and cons that you may want to consider before applying for this type of mortgage:

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    • Allows you to budget – A fixed-term mortgage, and a five-year deal more specifically, represent a good option if you want to know how much you’ll spend each month. By knowing exactly how much you’ll pay monthly, you can enjoy more financial freedom and set aside money for your future

    • Protection against rate hikes – One of the most favourable features of this type of mortgage is that you’ll be protected against any rise in interest rates for the duration of your five-year period. This means that even if the Bank of England’s base rate increases, your monthly repayments won’t change

    • Fewer fees and less admin work – With a five-year fixed-rate mortgage, you won’t need to pay as many fees. In fact, you won’t have to search for a new mortgage deal as often, meaning that you’ll face fewer expenses

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    • Higher interest rates than other fixed options – Tendentially, five-year fixed-rate mortgages come with higher interest rates than other fixed deals, such as two- or three-year fixed options. This is because you’re paying for the security of knowing that your repayment rate will remain untouched for a longer period

    • You can’t change your deal – If the interest rate decreases, you’ll miss out on precious savings, as you’re locked into a higher rate for a five-year period. This means that you may end up paying more than you would have with a tracker mortgage, which instead follows the Bank of England base rate

    • Hefty early-exit fees – If your circumstances change and you need to switch or pay off your mortgage, you’re likely to face a pricey early redemption charge (ERC). This can cost hundreds, if not thousands, of pounds. So, it’s always wise to take out a fixed-rate mortgage if you’re going to stick with it for the duration of the deal

When is a good time to get a five-year fixed-rate mortgage?

Although it may not seem like a very long time, many things can change in the space of five years. You could find a new job, start a family, and move to a different city.

A five-year fixed-rate mortgage could be a valid option if you have no plans or reason to move house in that five-year period. What’s more, if interest rates are low or are slowly starting to rise, it may be the right moment to lock in a long-term fixed deal. Instead, if rates are gradually falling, a mortgage without a fixed term could be a better solution.

MoneySuperMarket is always here to help you identify the best option for your needs. If you’re on the hunt for a long-term option that gives you peace of mind, we’ll scour the market to find the best mortgage rates for five-year fixed deals.

What is the average five-year fixed-rate mortgage?

In truth, there isn’t an average five-year fixed-rate mortgage, simply because there are many factors – other than interest rates – to take into account.

In fact, on top of your mortgage rate, you’ll have to pay different fees and charges. When you add them up to your fixed-rate deal, you may find that the ones with the lowest interest rates aren’t necessarily the most convenient.

What’s more, there is no guarantee that you’ll be offered the ‘favourable’ rate advertised by the lender. This is because lenders are only required to provide it to 51% of their mortgage applicants. So the rate you will receive can well be higher (or lower) depending on your personal situation and on the house you’re buying.

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How much deposit do I need for a five-year fixed-rate mortgage?

There is no definite answer to this, as it depends entirely on your lender and your personal circumstances.

To get any type of mortgage, you usually need to pay a deposit that amounts to at least 5% of the property’s full value. So, if the house you’re purchasing is valued at £200,000, you’ll need to put down a £10,000 deposit and take out a mortgage for £190,000.

But whether you opt for a fixed-term or variable-rate mortgage, a larger deposit will always open the doors to better deals. The higher the deposit, the lower the deal and interest rates you’ll be offered. This is because lenders tend to view people who can afford a bigger deposit as more reliable, as they’re more likely to financially be able to respect their repayments.

That said, there are scenarios in which you can get a mortgage without an initial deposit. This is known as a 'guarantor mortgage', which means you can borrow 100% of the property’s value if you name a family member or friend who will act as security for the loan.

Will my loan-to-value ratio impact my five-year fixed-rate mortgage?

In basic terms, a loan-to-value ratio (LTV) indicates the percentage of the property’s price that will be covered by your mortgage. So if the property purchase price is £300,000 and you have a 10% deposit (£30,000), you’ll need to get a mortgage of £270,000. This means that the LTV of the mortgage is 90%.

As with all mortgage options, LTV can have an impact on your fixed-rate deal. The higher your LTV, the higher your interest rate, meaning that your monthly repayments will be more expensive.

Can I get a five-year fixed-rate mortgage if I’m self-employed?

Self-employed people may sometimes find it more challenging to get a mortgage. This is because they don’t take home a fixed, secure annual salary. But that said, as a self-employed you should still have access to the same mortgage deals as everyone else, including a five-year fixed-rate plan.

However, you’ll usually need to have been in the trade for about three years before you apply for a mortgage. What’s more, lenders will ask to see two to three years’ worth of accounts to make sure you’ll have funds to repay the loan.

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Can I pay off a five-year fixed-rate mortgage in advance?

Yes, if you need or want to pay off your fixed deal in advance, you usually can do so. But bear in mind that this will come at a cost, as you’ll need to pay an early redemption charge (ERC) fee.

This can vary between 1% to 5% of your mortgage value and will depend on how long you have left on your plan. Before applying for a mortgage, make sure to understand what expenses you could face if you decide to pay off your loan in advance.

What mortgage alternatives do I have?

If a five-year fixed-rate mortgage doesn’t work for you, you needn’t worry. There are other mortgage plans you can opt for. For instance:

  • Two-year fixed-rate mortgage: This option tends to have lower interest rates and monthly payments than five-year fixes. It also provides you with more leeway, as you are free to switch deals and remortgage after two years rather than five. However, this means that you will have more regular admin work to sort out. Additionally, product fees are usually higher for shorter-term, fixed-rate mortgages, which may outweigh the advantage of lower interest rates.

  • Ten-year fixed-rate mortgage: A ten-year fixed-rate mortgage allows you to benefit from more security and to pay unchanged rates for a decade. The downside to this plan is that you have limited flexibility. What’s more, it’s difficult to predict what may happen to the economy in the next ten years. If interest rates fall, you will still be stuck with your usual (and ‘higher’) rates.

  • Discounted variable rate mortgage: This specific mortgage option is a deal that’s offered at a discounted rate to the lender’s SVR. If your lender’s SVR is, say, 5% and they’re offering a 1% discount, your interest rate will be 4%. The discount generally only applies for a certain amount of time, which is often about two years or so. Bear in mind, though, that SVRs differ depending on the lender. If one offers you a bigger discount than another lender, it doesn’t necessarily mean you’ll be benefitting from a better deal and lower interest rate.

  • tracker mortgage: Tracker mortgages follow the Bank of England base rate. Therefore, your interest rates and monthly payments are likely to change on a regular basis. If the base rate is low and stable, then a tracker mortgage is one of the best deals you could opt for. Conversely, it’s not as convenient when base rates are rising. So, in periods of uncertainty, you may want to consider choosing a fixed-rate mortgage instead.

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