Increasing numbers of homeowners are opting for five-year fixed rate mortgages to guard against the uncertainty caused by the cost-of-living crisis, an online mortgage broker has revealed.
Trussle has noticed an increased uptake of these deals which allow mortgage borrowers to fix their interest rate for five years.
It revealed not only were there more five-year options appearing on the market compared to the traditionally more popular two-year fix, but there had been a 17% increase in the initial period length of mortgages its customers were taking out.
What’s more, Santander revealed 55% of its new customers took out five year fixed rate deals last year – a huge rise on the 20% who were opting for the longer term fix in 2016.
The ‘pros’ of a five-year fix
So, what’s the attraction of this more longer term mortgage option, you may ask?
According to Trussle the main advantage of taking out a long-term fixed mortgage is the security of a fixed interest rate and therefore, stable monthly payments.
Indeed, homeowners are safe in the knowledge they are paying a set amount each month for a fixed period of time and they can budget around this.
If you secure your fixed-rate mortgage while interest rates are low, you can take advantage of this rate for the following five years, unlike tracker mortgages which fluctuate with changing interest rates.
We recently covered the 10-year fixed rate mortgage, which is another option for those keen to protect themselves from rate rises and remortgage costs. The five-year option also provides a compromise for anyone more familiar with a two-year deal and looking to fix for longer but nervous about a decade-long commitment.
Watch out for…
If you are considering opting for a five-year fix, it’s worth being aware of a few factors first.
Five years is a long time, therefore you should consider whether locking into a deal for half a decade would suit your stage of life. If there’s a chance, for example, you might move within that time you should ensure the mortgage is portable.
Early Repayment Charges
This is also why it’s essential you are aware of Early Repayment Charges (ERCs). These apply to most mortgages and are effectively an exit fee which you must pay if you remortgage or transfer your mortgage to another deal when you move.
Trussle said there was no set fee for an ERC – the cost was typically calculated as a percentage of the amount still outstanding on your mortgage. It could be as little as 1% or as high as 5% but this can vary depending how far you are into your mortgage term.
Overpayment limits
Trussle said fixed-rate mortgages tend to have an annual overpayment limit of 10% of your total mortgage balance.
Typically, lenders’ standard variable rates and tracker mortgage don’t have limits. So, if you plan to make overpayments of more than 10% and are still keen on the five-year fix, it could be worth speaking to a broker about your options.
Interest rate changes
Whilst fixed rates protect you in case the Bank of England increases its base rate, they also mean you cannot benefit if rates go down.
Miles Robinson, head of mortgages at Trussle, said in the current times – with energy bills increasing and inflation rising, it is understandable many will see the benefits of a fixed rate.
“Whilst it is difficult to make any predictions during a pandemic,” he said, “it is forecast that inflation will peak in April, indicating that the Bank of England will increase its key interest rate several times this year.
“With this in mind, now is a good time for homeowners to review their outgoings and budget effectively. The Bank of England’s 0.25% recent interest rate rise could add £324.48 onto mortgage products annually so it is vital homeowners explore all their options to save money, from remortgaging, through to making overpayments and the possibility of green mortgages.
“Speaking with an independent adviser will help you understand your options and make the best choice for you.”
What’s on offer?
These are Trussle’s Best Buys in the five-year fix market
| Mortgages (5-year Fix) | LTV | Initial Rate | APRC | Initial Term | Monthly Payment | Cashback | Upfront Payment | SVR | Monthly Payment following initial term | Total True Cost |
| HSBC | 80% | 1.74% | 2.89% | 62 months | £840.93 | £0 | £999 | 3.54% | £990.21 | £288,805.62 |
| Clydesdale Bank | 80% | 1.75% | 3.51% | 62 months | £841.90 | £0 | £1,394 | 4.49% | £1075.05 | £309,452.71 |
| Halifax | 80% | 1.77% | 3.17% | 64 months | £843.86 | £0 | £1,099 | 3.99% | £1,028.94 | £297,935.32 |
| Mortgages (5-year Fix) | LTV | Initial Rate | APRC | Initial Term | Monthly Payment | Cashback | Upfront Payment | SVR | Monthly Payment following initial term | Total True Cost |
| Clydesdale Bank | 90% | 2.18% | 3.67% | 62 months | £995.15 | £0 | £2,394 | 4.49% | £1220,90 | £354,668..41 |
| HSBC | 90% | 2.19% | 3.06% | 62 months | £996.28 | £0 | £999 | 3.54% | £1,125.05 | £330,530.68 |
| The Nottingham | 90% | 2.20% | 3.53% | 60 months | £997.41 | £0 | £1,139 | 4.24% | £1,197,30 | £348,336.68 |
The above deals are based on securing a mortgage of:
- £204,450 on a £255,556 property (that’s 80% loan-to-value) over a 25 year term
- £230,000 on a £255,556 property (that’s 90% loan-to-value) over a 25 year term
