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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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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 term.

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 can be 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:

  • Tick

    Pros:

    • 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

  • Cross

    Cons:

    • Higher interest rates than other fixed options – Traditionally, five-year fixes have usually attracted higher interest rates than shorter two or three-year fixes. However, changes in the market means that this isn’t always the case. Be sure to check with your mortgage adviser to find out the precise cost of a longer term fix.

    • 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

How long should I fix for?

How long you choose to fix for will depend on your personal preference and financial position. Fixed deals tend to be available for four different time periods:

  • 2

    Two years

    A two-year plan used to offer the cheapest interest rates, although upheaval in the mortgage market has meant that costs are now more in line with five-year plans and sometimes more expensive. Two-year plans give you the flexibility to change your deal within a short period after buying or remortgaging. However, it also means you’ll need to pay a fee to remortgage sooner than if you took out a longer term deal and leaves you exposed if interest rates rise rapidly.

  • 3

    Three years

    Three-year plans usually offer the same interest as two-year plans, but come with the added security of knowing how much you’ll have to pay for another 12 months. There’s also the fact you won’t need to find a remortgaging fee so quickly either. This can be a good deal if you’re happy to risk a change in interest rates but want medium term stability.

  • 3

    Five years

    A popular choices for homeowners and first time buyers. As well as providing long term security, protecting you from interest rate rises for the entire five years, they also ensure that your primary monthly expense doesn’t fluctuate, even when other bills do. However, if you want to move and cannot port your mortgage to another property, you may face a high exit fee. You are also likely to be limited to making a low percentage of overpayments, whereas an SVR deal lets you overpay as much as you want.

  • Plus

    Ten years

    10-year fixed-rate mortgages have become more common, as consumers look to lock in their expenses for as long as possible. However, such deals may require a large deposit or high equity when remortgaging. The bonus of knowing what you’ll pay may be offset by falling interest rates in the future, plus the fact that if you can’t port your mortgage or want to change deals, you’ll pay a big exit fee for the privilege. Overpayments are likely to be limited too.

What happens at the end of a five-year fixed term?

When you come to the end of a five-year fixed term mortgage, you have a number of options. You can allow your deal to expire and move onto a SVR product – but this will be subject to changes in the Bank of England base rate and may cost more in terms of interest, even though you won’t need to pay a fee to lock into a new deal.

Alternatively, you can take out a fixed-term deal with your existing provider, which tends not to require an affordability assessment, unless you want to borrow more money. This may seem easier, but you may not get the best deal.

The smartest approach is to research the market well in advance of your deal ending. By searching for mortgage deals and engaging the services of a mortgage broker, you should be able to land a better value deal than if switching to an SVR or staying with your current lender.

How to find the best fixed rate over five years

Finding the best five-year fixed rate mortgage deal doesn’t need to be stressful. First of all, use MoneySuperMarket’s search tool to find different deals that suit your needs.

You can then decide whether to speak directly with a lender or use a broker. Some of the best deals are only available directly from lenders, although taking this approach means you will need to manage the process. You may find that some deals do not cost as much in terms of fees if you go down this route.

The benefits of using a broker are multiple. They will be able to see many deals that have just become available and can manage the entire process on your behalf, filing your application and dealing with any queries. Their fee is charged to the lender, meaning you do not need to pay them directly.

With any deal offered to you by a broker, check if you can find it yourself and research whether it might be cheaper to go directly to the lender.

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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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.

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.

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.

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.

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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