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Should mortgage holders move to a fixed rate?

Journalist: Frances Ivens, Telegraph

ended 23. May 2023

According to the latest Moneyfacts figures, the average SVR rate is 7.37%, while the average two-year and five-year fixed rate mortgage is 5.26% and 4.97% respectively.

Mortgage rates have come down significantly since the end of last year and as interest rates remain high is now the time for holders on a variable rate to switch?

Or, are we expecting fixed deals to fall further over the coming months?

6 responses from the Newspage community

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Editor
Justin Moy
Managing Director at EHF Mortgages
The recent appeal of variable (and tracker) mortgages has waned over the last couple of months, given that those products have become more expensive than equivalent short-term fixed deals, and the realisation that rates may take a bit longer to reduce to make that a worthwhile strategy. For smaller mortgages, any potential benefits are small and probably not worth it, whereas those with larger mortgages may still see the potential base rate reductions worth holding out for. As always, advice should be specific to the individuals and their mortgage needs, so anyone who has those concerns should seek professional help from a broker who can run through the costs, the options, and more importantly what is right for the situation.

But it does look like we may have a little more to go with rates before we see wholesale reductions.
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Aaron Strutt
Product and Communications Director at Trinity Financial
The super expensive standard variable rates force many people to take fixes at the moment.
Many borrowers want the security of a fixed rate, especially with the Bank of England making constant price hikes. Two-year fixes are more expensive than they were and they have increased in recent weeks.
More of our clients are taking shorter-term deals because they think rates will decrease. Five-year fixes tend to be the cheapest across the market, but borrowers need to be aware they are often expensive to get out of if rates do come down over the coming years.
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Chris Sykes
Technical Director and Senior Mortgage Adviser at Private Finance
It is very rare we ever recommend a client to be on their lenders SVR, so if sitting on it, it is critically important they look into their options.
This option doesn't necessarily need to be to go onto a fixed rate (although many borrowers now are due to these often currently being lower in rate than trackers / variable rates) but is definitely worth getting off SVR either way.
Market expectations are that rates will stay high for a while, and with SVRs usually coming at a large premium it isn't something you should be on for an extended period of time, if ever.
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Luke Thompson
Director at PAB Wealth Management
I think that as brokers it is important to look at fixed rate for customers on a case by case basis. But, on the whole I would suggest most customers should look to take a fixed rate if they are currently on the lenders SVR rate.

Although the predicitions are that the base rate will start to fall in the medium term the projections in relation to this is that any decreases will be much slower than the increases we have seen in the past 18 months. With this in mind it seems unlikely that borrowers will be able to benefit from staying on their lenders SVR rather than looking to take a fixed rate mortgage.
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Gary Boakes
Director at Verve Financial
Fixed rates seem to be the way to go at the moment, variable rates are too high, tracker rates have increased and unless inflation is controlled soon that could still rise to 5% and the recovery seems to be getting further away. The question is whether you pay the extra for the 2 year fixed on the view that interest rates will drop in the next 2 years.
Ultimately, the mortgage is usually the highest expenditure in any family and knowing what your monthly payment is on a monthly basis is mentally easier for a lot of people, yes you may save money by playing the market but at what cost to people's mental health? Personally, that is more important to me and the majority of my customers would agree.
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Gary Bush
Financial Adviser at MortgageShop.com
To be honest, the fact that the variable rates are now seen at approximately 2% above the fixed rates makes the lenders margin more acceptable - if I look back to November 2021 there was a fixed rate available at 1.1% the variable rate for this product was approx 4.5%, so this situation has helped on that front. Our advice to clients is if necessary either take a discounted rate now with no redemption penalty and take on board all the costs of potentially remortgaging at a later date to another lender once rates improve OR take a 2-year fixed rate now which will enable you to escape to market at that stage, again potentially benefitting from a better fixed rate market. No-one really has all the answers to the current mortgage rate situation but compared to October - December 2022 it's looking a whole lot better than it was.