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Fixed versus variable

Journalist: Jake Carter, Mortgage Introducer

ended 19. September 2023

While fixed rates have become the surer option compared with variables recently, are there any circumstances in which variables could be better?

What circumstances are fixed rates better?

What are you recommending at the moment?

10 responses from the Newspage community

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Platinum
Elliott Culley
Director at Switch Mortgage Finance
We are now in a space where the rise in the base rate may soon be at its peak and it appears that fixed rates are also coming down. So it could now become an option for some to consider a tracker rate with the option to eventually switch when fixed rates have fallen some more. This is a client by client decision as if you want stability of payment then a fixed rate is the right option for you.
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Platinum
Stephen Perkins
Managing Director at Yellow Brick Mortgages
Variable rates may be suitable for those who can afford potential rate rises but would like to take their chances on the likely rate reductions to come as we are now nearly at the base-rate peak. However, i think we are more likely to see a long hold on rates once we reach the peak and any reductions will be much slower and more gradual than the journey up. So for most borrowers fixed rates, especially given the recent plethora of reductions are the preferred option, unless there is a requirement for no-tie-in flexibility making a variable option more suitable.
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Premium
David Robinson
Co-Founder at Wildcat Law
Certainty versus flexibility. If you know that your financial circumstances are unlikely to change, you are nervous about having to pay more for your mortgage and you are going to stay in your home for a number of years then fixed rates are probably the way to go still.
However, for a number of people, the early repayment penalties associated with fixed-rate mortgages may mean they turn to variable rates without penalties. Historically these have included business people who are looking to sell in the near future or receive a large amount of cash, to people retiring and seeking to pay off their mortgages with tax-free cash (PCLS) or even down-size. Going forward it may also include younger families who may be looking to upsize as their family, and income, grows.
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Premium
Elliot Cotterell
Director at Windsor Hill Mortgages and Cotterell & Cotterell Commercial Finance
In recent years longer fixed rates of 5 years or even longer have be favoured. However as rates have risen we are seeing more clients question taking longer term fixes.

Swap Rates on 2yr vs 5yr government debt are currently inverted which is normally a clear sign that the market believes that we are coming towards the end of the hiking cycle. Another 25 bps hike is largely priced into the market and views on one further rise after that are split.

Therefore clients are beginning to take a shorter term view on their fix horizon, fixing for 2 years in the hope that in 2 years time rates will have fallen to more appealing levels. A view we would currently agree with.

Some clients are even more dovish and are prepared to consider variable rates in the anticipation that they can ride the interest rate curve all the way back down for the next few years. A moderately risky strategy but does frequently come with the added benefit of zero ERC products which we favour for client keen to overp
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Premium
Denni Tyson
Mortgage and Protection Advisor at Henchurch Lane Financial Services
Currently, I think it's important for homeowners to know of the various mortgages available. For years, the industry has been quite linear concerning offering fixed rates as they have always been so low and the risk-averse option.

However, due to the rise of fixed rates, tracker/variable rates have now come to the forefront. I am finding that the banks have reacted well by offering trackers with no penalties and the ability to switch. My recommendations are more trackers than fixed currently due to how high they are with some providers. Plus most individuals want flexibility, but only time will tell to see if it pays off with Thursday being a key day for the British economy as a whole.
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Luke Thompson
Director at PAB Wealth Management
As has been the case for as long as I have been an adviser the majority of customers will always veer towards what they feel is the safety of a fixed rate and the guaranteed costs for a specified period. However, most customers I am dealing with do not want to be looked into a long-term fixed rate at the moment and with this in mind are shying away from a five-year fixed even though the payments are cheaper as they don't want to be stuck on the higher rate if interest rates start to fall at the end of 2024.

Variable/tracker rate mortgages will always appeal to those who are wanting their payments to reduce as soon as interest rates start to fall and we are seeing more customers who are wanting to take the gamble and hope that rates fall quicker than is being predicted.

On the whole the majority of business we are writing is for 2 year fixed rates currently with the odd 3 year fix or tracker rate. 5 year fixes are definitely not in fashion at the minute.
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Gary Boakes
Director at Verve Financial
The fixed v tracker/variable rate is an ever-present in-depth conversation in probably every brokers meetings at the moment. Ultimately, we recommend solutions to a customer's set of circumstances and the great thing about our job is everybody situation is different so no one solution is ging to fit everyone. The tracker/variable solution will always come down to the customers risk levels and whether they are mentally strong enough to cope with what will happen with their mortgage at every MPC meeting.
I would say at the moment, having a slightly younger customer database that they are still looking for that security and going with fixed rates, where the tracker rates have generally been for older or more affluent customers that can absorb any increases and happy with the risks.
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James Bull
Mortgage Broker at JB Mortgages
There are quite a few lenders that offer tracker mortgages with no early repayment charges, the majority of tracker mortgages i have done are for people expecting a lump sum that they wish to repay off the mortgage. The majority of people i am speaking to still prefer the certainty of a fixed rate mortgage which makes it easier to budget, even more so when the bank of england base rate is constantly changing.
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Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
Lenders, do not tend to offer Variable rates for new applicants, they tend to be what existing clients go onto after their deal has come to an end, whether that be Fixed, Discount or Tracker.
If clients need flexibility, as they are considering moving, it may be a benefit to go onto the variable rate, as this does not ordinarily attract early repayment charges.
The majority of new and existing clients tend to prefer Fixed rates, due to the stability they offer.
I have a few clients taking a punt that interest rates are excessively high at present and are taking out Tracker rates, hoping in the next few months interest rates reduce and they are then not stuck on a high fixed rate.
I think it is important to know your client and discuss their circumstances, before making any recommendations.
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Charles Breen
Founder at Montgomery Financial
To go with a fixed rate over a variable rate is a question I am getting a lot, particularly with people who are remortgaging at the moment as they want to save money monthly. I always tell clients at the moment that its very subjective to your risk tolerance, and that rates could rise further as likely as they are to fall, and while I believe we are over the worst of it at the moment we have no idea how long the rates will stay at current levels or when they will start o decrease.
Currently the vast majority of my clients are going with a fixed product over trackers, there is just so much uncertainty still that people don’t want to take the risk and too many people have been burnt by the sudden and sharp rises in rates that people are wary. But that said as the rates battle currently seen with lenders intensifies then I can imagine it will spur confidence and we will see more clients opting for variable rates. It has all to do with confidence and at the moment that is in short supply.