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Fixed rate mortgage terms – weighing up flexibility and stability

All, Mortgages & General Property News
Two-year fixed mortgage rates may soon be cheaper than five-year deals. Falling inflation and expected interest rate cuts are shifting market dynamics. Borrowers must now weigh flexibility versus stability when choosing new fixed-rate mortgages. 

For the first time since Liz Truss’s disastrous mini-budget in 2022, some two-year fixed mortgage rates are cheaper than five-year deals. This would reverse a trend that began during her short premiership, when market turmoil pushed up short-term borrowing costs and made longer fixes more attractive. That pattern now looks set to change. 

If inflation continues to ease and the Bank of England starts cutting interest rates as expected, shorter-term borrowing costs could fall more quickly than longer-term ones. This is because fixed mortgage rates are based on swap rates, which reflect where markets think interest rates are heading. When markets anticipate cuts in the near term, two-year swap rates tend to fall faster than five-year rates. 

As a result, we may see two-year fixes dip below five-year deals later in 2025. While there’s still uncertainty, with inflation proving stubborn and global risks like energy prices and trade tensions on the radar, market expectations point towards a shift. This has implications for anyone approaching the end of a fixed-rate deal. In the past, five-year fixes offered both peace of mind and a lower rate. But with the market outlook evolving, borrowers may now find themselves weighing flexibility against stability in a new light. 

If your fixed-rate mortgage is coming to an end this year, remember you can often lock in a new deal months ahead of time. Get in touch with us to discuss your options and secure a rate that suits you before any further changes in the market. 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.