2 or 5 Year Fixed Mortgage Rates, which is best for you in 2024? (2024)

• January 28, 2024

Table of Contents

If you are looking for a new mortgage or planning to remortgage your home in 2024, you may be wondering whether to choose a 2 or 5 year fixed mortgage.

Fixed mortgages offer the security of knowing your monthly payments will not change, regardless of what happens to the Bank of England’s base rate, which influences the mortgage rates lenders offer. However, fixed mortgages sometimes also come with some drawbacks, such as higher interest rates, early repayment charges, and less flexibility.

In this blog, we will compare the pros and cons of 2 and 5 year fixed mortgages, and help you decide which one is best for you, based on your personal circ*mstances and the outlook for the UK economy and the housing market in 2024.

The overall average two- and five-year fixed rates fell between the start of December and the start of January, to 5.93% and 5.55% respectively; the last time these were below 6% was in June 2023. The average two-year fixed rate stands 0.38% higher than the average five-year equivalent.

• 2 year fixes usually have the lowest interest rates and smallest monthly repayments, compared to longer-term fixed mortgages. This means you can save money in the short term and have more disposable income.
• 2 year fixes allow you to switch to a lower deal sooner if interest rates fall or your circ*mstances change. You can also benefit from any house price rises, which can increase your equity and improve your loan-to-value ratio, making you eligible for lower rates.
• 2 year fixes have lower or no early repayment charges, which means you can overpay your mortgage without penalty, or pay it off completely if you have the funds. This can help you reduce your mortgage debt and save on interest.

• 2 year fixes expose you to the risk of interest rate rises, which can increase your monthly payments when your deal ends. You may also have to pay a mortgage fee, as you will need to remortgage unless you move to your lender’s standard variable rate, which is usually much higher than the fixed rate.
• 2 year fixes offer less stability and peace of mind, as you will not know what your monthly payments will be after 2 years. This can make it harder to budget and plan, especially if you have a tight income or other financial commitments.
• 2 year fixes may not be suitable for borrowers who want to lock in a low rate for a longer period, or who do not want to deal with the hassle and cost of remortgaging frequently.

• 5 year fixes offer the certainty of knowing your monthly payments will not change for 5 years, regardless of what happens to the base rate or the economy. This can help you budget and plan, and protect you from any interest rate shocks.
• 5 year fixes allow you to take advantage of rates for a longer period, and avoid the hassle and cost of remortgaging every 2 years. You could also benefit from any house price appreciation, which can increase your equity and improve your loan-to-value ratio, making you eligible for lower rates when you remortgage.
• 5 year fixes may be suitable for borrowers who are happy with their current deal and do not expect their circ*mstances to change significantly in the next 5 years, or who want to avoid the uncertainty and stress of remortgaging frequently.

• 5 year fixes usually have higher interest rates and larger monthly repayments, compared to shorter-term fixed mortgages. This means you will pay more interest over the term of the mortgage, and have less disposable income.
• 5 year fixes limit your flexibility and options, as you will be tied to your lender and your deal for 5 years. You will also have to pay higher early repayment charges, if you want to overpay your mortgage, switch to a better deal, or pay it off completely, before the end of the term.
• 5 year fixes may not be suitable for borrowers who expect interest rates to fall or their circ*mstances to change significantly in the next 5 years, or who want to take advantage of lower rates or better deals in the market.

If you are risk-averse and prefer stability and certainty, a 5 year fixed mortgage may be a good idea for you, as it will protect you from any interest rate rises and give you peace of mind for the entire set period.

If you are risk-tolerant and prefer flexibility and opportunity, a 2 year fixed deal mortgage may also be a good idea, as it will allow you to switch to a better deal sooner, if interest rates fall or your circ*mstances change within the shorter period.

However, it is important to consider your attitude to risk and determine whether a longer term fixed rate deal would provide more stability and peace of mind for your financial future. Ultimately, choosing the right option depends on your individual preferences and risk tolerance, as well as the current rate period and market conditions.

If you have a tight income or other financial commitments, you may opt for a 2 year fixed mortgage, which will offer you the lowest monthly payments and free up some cash.

However, if you have a comfortable income or some savings, you may opt for a 5 year fixed mortgage, which will offer you the security of knowing your monthly payments will not change for a longer period, and allow you to overpay your mortgage and save on interest if you can afford it.

In addition to lower monthly repayments, it is important to carefully consider your financial situation and long term goals when deciding between a 2 or 5 year fixed mortgage.

If you are planning to move house, start a family, change jobs, or retire in the next few years, you may opt for a 2 year fixed mortgage, which will give you more flexibility and options, and avoid locking you into a deal that may not suit your changing needs.

If you are happy with your current home, family, job, and lifestyle, and do not expect any major changes in the next 5 years, you may opt for a 5 year fixed mortgage, which will give you more stability and certainty, and avoid the hassle and cost of remortgaging frequently based on the size of your mortgage and your future plans.

Do not just look at the headline interest rate, but also consider the fees and charges that come with the mortgage, such as arrangement fees, valuation fees, legal fees, and early repayment charges.

These can add up to a significant amount and affect the overall cost of the mortgage. Sometimes, a slightly higher interest rate with lower fees may work out cheaper than a lower interest rate with higher fees, especially for smaller mortgages or shorter terms.

Before you apply for a mortgage, check your eligibility and affordability, by looking at your credit score, income, outgoings, savings, and equity.

Lenders will use these factors to assess your risk profile and your ability to repay the mortgage and offer you a deal accordingly. You can use our online mortgage calculators to get an idea of how much you can borrow and how much it will cost you.

Fixed mortgages are a popular choice for many borrowers, as they offer the security of knowing your monthly payments will not change for a certain period, regardless of what happens to the base rate or the economy. However, fixed mortgages also have some drawbacks, such as higher interest rates, early repayment charges, and less flexibility.

Whether you choose a 2 or 5 year fixed mortgage depends on your personal preferences, circ*mstances, and expectations. You should consider your attitude to risk, your financial situation, and your future plans, and weigh the pros and cons of each option.

You should also compare different lenders and products, consider the fees and charges, and check your eligibility and affordability before you apply for a mortgage. You can speak to one of our mortgage advisors, who can help you navigate thousands of mortgages and find you a fantastic deal.

Fixed mortgages are not the only option available, however. You may also want to look at other types of mortgages, such as variable rate mortgages, tracker mortgages, or offset mortgages, and see if they suit your needs better.

We hope this blog has helped you understand the pros and cons of 2 and 5 year fixed mortgages in 2024, and how to decide which one is best for you. If you have any questions or feedback, please contact us. Thank you for reading!