Fixed Rate Mortgages

A fixed-rate mortgage locks your interest rate, so your monthly payment stays the same for a set period, whatever happens to the Bank of England base rate during that time.

Fixed-rates are the most popular type of mortgage in the UK because they make budgeting simple. This guide explains how fixed-rate mortgages work, how to choose the right fixed term, and what to do when your deal ends.

What is a fixed-rate mortgage?

A fixed-rate mortgage is a home loan where the interest rate stays the same for an agreed initial period, regardless of changes to the base rate or the lender's own rates. The intial fixed period is known as your deal term. This is not to be confused with your mortgage term, which is the total time you have to repay the loan.

Most people take out several fixed deals over the life of one mortgage, by remortgaging or switching product each time a deal term ends.

How does a fixed-rate mortgage work?

When you take out a fixed-rate mortgage, the lender sets your rate for the deal term. Common terms are 2, 3, 5 and 10 years; some lenders fix for 15 years or longer. Leaving or repaying in full during the fixed-rate period usually triggers an early repayment charge (ERC), which is often charged at 1%–5% of the full mortgage balance.

Your monthly payment depends on three things:

• How much you borrow
• The fixed interest rate
• Your mortgage term (how many years you have to repay)

On a repayment mortgage, each payment covers the interest plus some of the loan, so your balance falls over the fix. Most fixes also let you overpay up to 10% a year without a charge.

When the fix ends you automatically move onto the lender's standard variable rate (SVR) unless you choose a new deal (remortgage). SVR rates are notoriously higher, so it’s important to start looking for a new deal around 6 months before your current deal term ends.

Example: How fixed-rate monthly payments work

This is what the payments could look like on a £200,000 repayment mortgage over 25 years, depending on the length of the deal term, and the interest rate offered:

You can use our mortgage repayment calculator to run your own figures, or see examples for other loan sizes.

The cost of doing nothing when your fix ends

Using the same example as above, if you fail to remortgage when your deal ends, this demonstrates how your payments might rise:

If following a 5.10% two-year fix, you drift onto a 6.50%* SVR, your payment rises from £1,181 to about £1,340 a month. That's roughly £160 a month, or £1,900 a year, for not switching.

*Used for demonstration purposes only, based on current average SVR rates, but could be either higher or lower in reality.

How does the Bank of England Base Rate impact fixed-rate deals?

There is not a direct impact on fixed-rates when the Bank of England (BoE) Base Rate changes, although most lenders respond with rate rises or cuts either prior to or shortly after one. However, unlike with a tracker mortgage, there is no direct correlation, so fixed deals won’t usually go up or down by the same amount as the base rate.

It’s also important to note that while you are in a fixed term deal, base rate changes won’t impact you at all. The whole point of a fixed-rate mortgage is to shield you from economic fluctuations. However, when you’re close to the end of a deal, or you’re looking to buy a new home, it’s more important to pay attention to rates in general.

Lenders price fixed-rate products using swap rates (the cost for banks to borrow money over a set period). Swap rates reflect where the financial markets expect the BoE Base Rate to go over the next few years, rather than just where it sits today. If markets anticipate that the Bank of England will raise or maintain high interest rates, swap rates rise, leading lenders to increase the interest rates offered on new fixed deals. If the BoE cuts the Base Rate, new fixed-rate offers generally become cheaper across the market.

Should you fix your mortgage now? Our expert weighs in:

How long should you fix your mortgage for?

The right fixed term depends on how long you'll stay in the property, how much certainty you need, and whether you expect your circumstances to change.

Fixed-rate mortgages for different borrowers

• First-time buyers: fixed-rates are available from a 5% deposit. Most first-time buyers fix to keep payments predictable

• Home movers: port your existing fix or take a new one

• Remortgaging: compare a product transfer with deals from other lenders

• Landlords: buy-to-letfixes help you forecast costs against rent; five-year fixes can help with rental stress tests

• Bad credit: specialist lenders offer fixed-rates, usually at higher rates

How much deposit do I need?

You can get a fixed-rate mortgage with a 5% deposit, but rates improve at each LTV band, typically 90%, 85%, 75% and 60%.

Moving from 90% to 75% LTV can cut your rate noticeably and widen your choice of lenders. Use our affordability calculator to see what you could borrow.

Early repayment charges (ERCs)

If you leave a fixed-rate deal before the deal term ends, you'll usually pay an early repayment charge (ERC). ERCs are charged at a percentage of the outstanding balance and often fall each year.

For example, leaving a five-year fix in year three with a £185,000 balance and a 3% ERC would cost £5,550.

You can usually avoid paying ERCs by:

• waiting until the deal ends

• porting the mortgage when you move

• switching to a new deal with your lender in the last 3–6 months

• choosing a fixed-rate with no ERCs

Can I overpay my fixed-rate mortgage?

Most fixed-rate mortgages let you overpay up to 10% of the balance each year without a charge. Some allow more, some calculate it on the original loan, and a few allow less, so check your mortgage offer.

Overpaying reduces your balance, the interest you pay and, potentially, your LTV when you remortgage, which can unlock a cheaper rate.

Can I take my fixed-rate with me if I move?

Most fixed-rate mortgages are portable, meaning you can transfer the deal to a new property and avoid the ERC. However, if you need to borrow more when porting a mortgage, the extra is usually on a separate deal at current rates, so in many cases it would be cheaper to remortgage onto a single rate.

What happens when your fixed-rate ends?

When your fixed period ends, your mortgage moves to your lender's SVR, which is generally higher than any deals available. If you opt to stay on the SVR, you are not tied in, so can leave at any time, but you'll usually pay much more than you need to.

To avoid paying the SVR rate, you can:

• Product transfer: switch to a new deal with your current lender. Usually quick, and no new credit check or valuation is needed in many cases
• Remortgage: move to a new lender for a better rate or to borrow more

Most lenders let you lock in a new rate up to six months before your fix ends, and you can often switch to a cheaper deal later if rates fall before the new deal’s start date.

How to get the best fixed-rate mortgage deal

1. Decide how long to fix, based on your plans for the next 2–10 years
2. Maximise your deposit or equity to reach a lower LTV band
3. Compare total cost, including fees and ERCs, not just the interest rate
4. Check portability and overpayment terms
5. Get whole-of-market advice from a broker who can compare deals across lenders and act quickly when rates change

Speak to a fixed-rate mortgage expert

Choosing how long to fix, and which deal to take, can save or cost you thousands. Our qualified advisers compare fixed-rate mortgages from across the market, and can lock in a rate up to six months before your current deal ends.

Ready to take advantage of a free, no-obligation chat with an expert broker? Speak to us about your fixed-rate mortgage options