The vast majority of borrowers have been opting for fixed rate mortgages this year to provide some stability, but certain products have proved particularly popular.
Choosing the right lender and mortgage product for your needs can be a challenge, whether you’re a first-time buyer, a home mover, or a property investor seeking the best buy-to-let mortgage. There is a level of risk involved when deciding how long to lock in for, too.
Securing a five-year or ten-year fixed rate mortgage can offer the greatest level of stability and predictability for borrowers – it means you know exactly what your monthly borrowing costs will be. This can be particularly helpful for buy-to-let landlords, where monthly rental income generally covers some or all of the mortgage costs.
Sometimes, longer-term fixed rates can be cheaper than shorter ones. However, depending on how the market performs, you could end up paying more interest in the long run by locking in for longer, if interest rates drop and prices become cheaper during that period. This is where a level of risk assessment and judgment comes in, with many borrowers seeking advice from an independent broker.
People are choosing shorter terms
New research from Mojo Mortgages has revealed that a huge 95% of all their customers went for a fixed rate mortgage in 2024. This reflects the market’s strong preference for stability, says the broker, with the remaining 5% choosing a range of variable options, including tracker, discount and standard variable rate options.
The data also reveals which fixed rate mortgage products buyers were choosing – and a huge 68.8% of borrowers opted to fix for two years. Just less than a third (30.9%) chose a five-year product, while 0.3% of the market locked in for 10 years.
This reflects the fact that interest rates have been largely predicted to fall from their current level, and the Bank of England has brought its base rate down from 5.25% at the start of the year to 4.75% now, which has been reflected by many lenders. It means that those who have secured a two-year rate now are expecting to lock onto a more competitive rate when their current product expires.
Of the 5% of people who steered away from fixed rates and opted for something variable, the highest proportion (4.86%) of Mojo’s customers chose a tracker mortgage. This is a product that tracks at a set amount above the Bank of England base rate, and can mean a more competitive rate but is subject to change.
Discount mortgages were chosen by 0.09% of customers. These are deals that offer a discount on the lender’s standard variable rate for a fixed period of time. Standard variable rates were only chosen by 0.04% of people, making them the least popular product.
Should I get a fixed rate mortgage?
The latest data from Moneyfactscompare shows that there are huge cost differences between lenders’ standard variable rates and their fixed rate mortgages. The average standard variable rate at the start of December was 7.85%, according to their research – while the lowest average fixed rate mortgage was 4.86% for a five-year term with 60% loan to value (LTV).
While average rates across all product types (apart from tracker mortgages) are down compared with last year, they have all fallen at different rates – with two-year fixed rate mortgage rates falling faster than their five-year counterparts, according to the figures from Moneyfactscompare.
Mojo Mortgages conducted its own research looking at the average highest and lowest two-year and five-year fixed rate mortgages in 2024 from the ‘big six’ lenders, across all loan to values.
It found that the lowest two-year fix was 4.5%, rising to 5.3% for the highest. In the five-year space, the lowest product interest rate was 4.1%, rising to 4.9% for the highest. This means those locking in for five years may currently be on a cheaper rate – but borrowers must decide whether they think this will still be the case in two years’ time, and whether this is the right option for them.
Mojo’s report notes:”Mortgage rates have fluctuated throughout the year, but we’re beginning to see signs of stability. Borrowers with a longer-term outlook found better value in 5-year fixed rate mortgage deals, locking in lower rates compared to shorter-term options. However, longer-term mortgage deals have early repayment charges if you exit early, so consider your future circumstances before committing.”
