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Are two-year fixed rate mortgages still a good idea?

ended 03. May 2024

Recent data from UK Finance reveals that over four in ten (42%) of all mortgages in January and February were fixed for two years.

Mortgage borrowers are consistently choosing two-year fixed deals, anticipating lower interest rates when they next remortgage.

However, hopes of base rate cuts, influencing fixed-rate mortgage prices, have been tempered in recent weeks.

And initial expectations of six or seven base rate cuts this year have dwindled, with forecasts now predicting only two or three.

It would be good to get your thoughts on whether:

  • Is opting for a more expensive two-year fix over a cheaper five-year one still the best choice for home buyers and those remortgaging?
  • What are you recommending to your clients and why?

9 responses from the Newspage community

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Jonathan Gordon
Director of Wealth Management at IP Global
Two-year fixed mortgages cost more than five-year ones, but many buyers are opting for them in anticipation of predicted interest rate drops in the next few years. This could potentially lead to a better deal upon renewal. However, relying solely on this forecast poses a risk. Choosing a mortgage based solely on rate predictions for two years ahead isn't advisable. It's wiser to select an option that aligns with your financial situation and feels manageable. Additionally, opting for a five-year fix may allow you to borrow more.
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Dariusz Karpowicz
Director at Albion Financial Advice
Choosing a two-year fixed-rate mortgage can seem enticing if you think rates have peaked and are due to drop. But it's a gamble. UK mortgage rates have historically soared as high as 18%, so there's always a chance they could climb further. With uncertainty over this year's base rate cuts, it's vital to weigh your financial security and risk appetite. For clients seeking stability, the decision hinges on personal circumstances and comfort with potential rate fluctuations.
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Craig Fish
Director at Lodestone Mortgages

It ultimately boils down to personal choice and selecting the best option for each customer's unique circumstances. There's no definitive right or wrong answer, except for the fact that you can't outsmart the market—it tends to prevail. Relying solely on predictions of lower rates in two years is unwise. Instead, opt for a product that aligns with your situation and is financially manageable. This way, you remain in control of your destiny. Never hinge such a crucial decision on the speculative actions of others.
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Mike Staton
Director at Staton Mortgages
Choosing your fixed rate initial period should be a decision made on your own personal circumstances and not what you think the economy will do. The economy has been unpredictable at best over the last 3 years. However, banks are not in the charity game and it's easy to assume that banks are offering cheaper fixed rates over 5 years as they want to get you tied in for that longer period. My belief is that banks will be hoping to cash in on bumper paydays when people who signed up for "cheaper" 5 year deals realise they are paying over the odds as I strongly believe rates will drop. Am I signing up for a 5 year period? No, I'm risking the 2 year period as I would rather fall on my own sword than pay the banks a princes ransom to get out of a 5 year deal when rates drop
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Ken James
Director at Contractor Mortgage Services
The question of all questions "shall we fix for two or five years?" it’s a difficult decision - clients are playing Russian Roullette and gamble on what will work out best for them, no one knows what the future holds and whilst we believed that the market would improve, it hasn't turned out that way
2 year fixed rates cost more than the 5 year option, the temptation to do a 5 year is certainly there but a lot of clients are mindful of taking a long term rates, they do not want to then see rates come down, feeling they have missed out on a lower deal. Fees would be payable to exit the 5 year fixed rate and this would just wipe out any benefits of the lower rates, conversely you could have taken the 2yr option and rates may continue to rise, leaving you wishing you had opted for the 5 yr rates. Theres no right or wrong answer, you have to take what you feel best suits your needs.
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Chris Steele
Founder at myTribe Insurance
As someone that moved recently and got a new mortgage, my wife and I were tempted by a two year fix, but in the end opted for five years.

The primary reason was that the five year rate was a lower, and also, we felt on balance with the the wars in Ukraine and the Middle East, that there was a higher probability rates would go up in the coming years rather than down.

Also, something often overlooked is if you run your own business, the time you need to invest in preparing accounts, getting statements, answering questions etc is significant, and we're happy not to have to do this again in the near future.

Getting a mortgage feels very much like gambling on rates, which it shouldn't be.
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Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
This is not surprising given that the Bank of England is expected to lower its rate later this year, which should, in turn, should reduce mortgage rates. This gives borrowers the option to remain on these high rates for only two years, with the flexibility to renew when their two-year fixed rate ends, and most likely lower payments.
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Graham Cox
Director at Bridging Hub
Two-years deals make a lot of sense given it's widely expected the Bank of England will cut the base rate over the summer. My best guess is mortgage rates will be around 4% in a year's time, but who knows. The only caveat is two year fixes tend to be slightly more expensive than five year fixes, and the latter can also allow you to borrow more. One major lender even has a five year fix with early repayment charges in the first two years only.
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Mark Andrews
Advisor at Finance Energy
Good advice does not work like this. There are multiple things that impact the decision between a two or five year product and most of them are personal. Guessing what rates are going to do is a minor consideration when weighed against other life events and the overall financial objectives. In recent times when I have done two year fixed, it has not been because the borrower anticipated or hoped for lower rates in the future but because it was appropriate for a broader strategy.