It’s been a rocky road for mortgage rates in recent years, and most experts believe the volatility could continue. The case for fixed-rate mortgages is therefore as strong as ever, as the majority of borrowers favour the security of these products over the flexibility of other types of mortgage. But exactly what level of security you want versus flexibility can to some extent be decided by the length of your fixed-rate period. In this guide, we’ll explain what mortgage rates are predicted to do in the coming years, whether now is a good time to fix or not, and what the benefits and drawbacks are for 2-year, 5-year and 10-year fixed-rate mortgages.
What Will Happen to Mortgage Rates in the Next 2 to 5 Years?
Given the volatility of mortgage rates in recent years, it would be foolhardy to say we know for sure what will happen in the years to come. However, we can explain the industry’s current predictions. Most experts believe that mortgage rates will gradually fall over the next three years but potentially not by much and not in a linear fashion. In other words, rates could go up along the way. But as long as contributing factors continue to favour lower mortgage rates, the industry hopes average rates will come down to around 3.5% in the next two to three years. Predictions beyond that point are difficult to come by, but the unanimous view is that 3.5% may be the lowest threshold we can hope for in the foreseeable future. The historic lows seen in 2021 are unlikely to come back for many many years if at all.
The key thing to remember is that these are just predictions – and best-case predictions at that. Mortgage rates are influenced by the Base Rate, swap rates, inflation, economic conditions and geopolitical circumstances. With so many variables at play, there are no guarantees that the predictions above will come true. If inflation were to rise again, for example, mortgage rates would likely rise as well over the next 2 to 5 years. It’s this uncertainty that makes fixed-rate mortgages a safe choice for the majority of borrowers.
Is Now a Good Time to Get a Fixed Rate Mortgage?
Fixed-rate mortgages provide greater certainty and security than variable products. You’ll be protected from any rate fluctuations and you’ll know exactly how much your monthly repayment will be throughout the fixed-rate period. Even when rates are expected to come down, the majority of borrowers still usually choose a fixed-rate product. This is because borrowers tend to be risk-averse, favouring security above the possibility of a slightly reduced rate down the line. If you want to easily budget for your mortgage and protect yourself from potential rate hikes, it’s usually recommended you choose a fixed-rate mortgage. But the next question is how long to fix for, so let’s jump into that next.
How Long Should I Fix My Mortgage For?
How long you should fix for depends on many factors, including your future plans and your risk tolerance. Longer fixes provide security long into the future but they usually come with less flexibility. Let’s have a look at the three most popular fixed-rate periods below.
2-year fixed-rate mortgages provide stability for the near-term future whilst also allowing some flexibility. Only being tied into a mortgage for two years means there’s less chance of you having to pay an Early Repayment Charge (ERC) as you’ll likely be able to wait until the fixed rate has ended before remortgaging or moving house. You may also be able to switch to a lower rate if rates drop during the two years. However, if rates rise during the two years, you may have to switch to a higher rate. If you plan to move house in around two years’ time or you want short-term stability with the hope that rates will drop in the near future, then a 2-year or 3-year fix may be right for you.
5-year fixed-rate mortgages provide security for the medium term but offer less flexibility than a shorter fix. Your plans may change during the fixed-rate period, which could mean you’ll have to pay an ERC or port your mortgage. If rates fall during the five years, you may have to decide whether to pay an ERC to switch to a lower rate or continue paying your current rate. However, if rates rise, you’ll be protected for five years, which could save you money. If you plan to stay in your home for around five years or you want security over the medium term, a 5-year fix may be right for you.
10-year fixed-rate mortgages provide long-term security but come with the least amount of flexibility. On the positive side, you’ll know exactly how much you’ll have to pay each month for the next ten years, allowing you to budget easily and protecting you from potential rate hikes. On the downside, if rates drop, you may pay more than you need to. The chances of you having to pay an ERC to end the deal early are also higher as a lot can change in ten years. If you’re comfortable with potentially paying more for the extra security of a long-term fix, or you only have around ten years remaining on your mortgage, a 10-year fix may be right for you. Just be aware that, although not guaranteed, rates are expected to fall over the coming years, so there may be a better time to lock in a long-term fix.
What Should I Do If My Fixed Rate Mortgage Ends in 2025?
If your fixed-rate mortgage ends in 2025, you’ll need to make some important decisions. If your deal ends in the next six months, we recommend booking a chat with one of our friendly advisors as soon as you can to discuss your options. You can also start preparing by working through the steps below.
- Review Your Current Situation. Calculate your current monthly repayments and interest rate, review your income, expenses, and overall financial health, and consider your plans for moving house in the future.
- Learn About Your Options. Read our guides to learn more about:
- Get Expert Advice. Book a chat with one of our advisors. We’ll be able to assess your situation and goals, and then explain what steps to take. We’ll also find out what deals are available to you from across the market, including exclusive deals that aren’t available directly.
- Act Quickly. It’s important to start the remortgage process early to ensure you don’t end up paying more on the Standard Variable Rate. And if a lower rate becomes available before your new deal starts, we can switch you to it seamlessly.
The Bottom Line
If your current mortgage is coming to an end in 2025, you may want to consider remortgaging to a new fixed-rate deal. Doing this can save you money compared to being on the Standard Variable Rate and will offer you security over the years ahead. Exactly what will happen to mortgage rates is hard to predict with certainty, which is why fixed-rate products are so popular. If you think you may want to move house or switch to a new deal in two to three years, then a 2-year or 3-year fixed rate mortgage may be most appropriate for you. If you plan to stay in your home for longer or you want the security of knowing what your repayments will be over the medium to long term, then a 5-year or 10-year fixed-rate mortgage may be more suitable. Just be aware that if circumstances change and you need to switch to a new deal during a longer fix, you may have to pay an ERC. Also, if rates drop during your fixed-rate period, you may end up paying more than you would have with a shorter fix. Be sure to speak to one of our friendly advisors when deciding how long to fix your mortgage for. We’ll assess your situation and help you decide what term is most suitable for you.
At Michael Usher Mortgage Services, we’ve been helping people throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
