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Best fixed-rate mortgages: two, three, five and 10 years
Best-buy tables can be deceiving. We explain which really are the cheapest mortgage deals, including fees
Mortgage rates have started to edge back down in recent weeks, as expectations for an interest rate rise ease.
Rates on two, five and 10-year fixed deals fell to record lows earlier this year, but prices started to rise in September following comments from Mark Carney, Governor of the Bank of England, that suggested Bank Rate would rise around the turn of the year.
But expectations for a rate rise have slipped again, with some economists predicting the UK will not see an increase until the second half of 2016.
The price at which lenders can access funding on the money markets has fallen and there are some very competitive deals still on the table, particularly for borrowers with a small deposit.
This guide tells you everything you need to know about fixed-rate mortgages and the best deals available. It is regularly updated as events change.
For up-to-date best-buy fixed-rate mortgage deals, go to our mortgage best buy tables . This shows a selection of top rates based around your requirements.
What affects fixed mortgage rates
The pricing of fixed mortgage rates depends on several factors, but mostly whether banks can get their hands on cheap money to lend out. They usually get it from savers or by borrowing from other banks on the money markets, buying money at a certain rate the “swap” rate for a certain time period.
These swap rates react to expectations of future interest rates and inflation, which affect the price of mortgages.
Two and five-year swap rates were driven down for much of 2013 so the price of fixed rate mortgages fell. But those swap prices increased towards the end of 2013 and in early 2014, and with them, the average cost of new fixed mortgage deals.
But swap rates dropped sharply again earlier this year and deals were as cheap as they’ve ever been. Rates plummeted as lenders battled for a spot in the best-buy tables. Ten-year fixed rates fell below 3pc for the first time in February and five-year fixes fell below 2pc for the first time in April.
David Hollingworth, of broker London Country, said the level of competition in the market has remained extremely high.
“Lenders are cutting their rates again and although they’re not as low as we saw earlier this year, the deals are very competitive,” he said.
“Lenders are keen to meet their end-of-year lending targets and build up a healthy pipeline of business for 2016, so they’re doing what they can to attract borrowers. But you still need to look beyond some of the eye-catching rates for the best deals as the very lowest rates can come with hefty arrangement fees.”
Ray Boulger, of broker John Charcol, said he expects that fixed rates will remain relatively stable for the next few months, as a Bank Rate rise is unlikely to come in the immediate future.
“The cost of funding for lenders is not changing much, so there’s no great need for lenders to alter their fixed rate pricing drastically.”
What is the difference between fixed and variable-rate mortgages?
If you take out a fixed-rate mortgage, the interest rate you pay will be fixed for the initial special period, regardless of rate changes made by the Bank of England. Fixed rates are typically for two, three, five and occasionally 10 years, with the interest rate rising as the term gets longer. Once the fixed period ends, borrowers are pushed on to the standard variable rate, which can be much higher.
Variable mortgage rates can vary during the mortgage term, meaning borrowers will not have the security of knowing how much their repayments will be every month. However, if the UK economy dips, interest rates will decrease, making the repayments substantially cheaper. Also, because the mortgage comes with the uncertainty of interest rates either rising or falling in the future, the initial rate is often much lower than with fixed mortgages.
The cheapest fixed deals
It’s not all about rate. Lenders like to add extra charges, such as arrangement fees.
We have calculated the full cost on some of the best deals, based on a £350,000 home with a loan of 25 years. We used a buyer with a 40pc deposit – £140,000 – and a buyer with a 10pc deposit, or £35,000.
For those who want the peace of mind of having a fixed monthly cost, and for anyone who doesn’t want the risk of fluctuating interest rates, fixed-rate mortgages are appealing.
Below we list the best on the market, according to London Country, using the two different deposits.
Norwich Peterborough Building Society currently offers the cheapest deal once you factor in the arrangement fee.
N P ‘s 1.59pc deal comes with no arrangement fees. Monthly repayments would be £849. or £20,371 over two years.
West Bromwich has a competitive two-year fix priced at 1.19pc with a £999 fee. Monthly repayments would be £810 and the total cost would reach £20,430 including the fee.
The Post Office has a 1.15pc deal which comes with a high £1,995 arrangement fee. Monthly repayments would be £806. or £21,334 over the two years.
For those with smaller deposits of 10pc, or £35,000, HSBC comes out on top. Its 2.38pc deal comes with fees of £999. Borrowers would pay back £1,394 a month, or £34,459 for the total two-year term including the fee.
Tesco Bank has a 2.29pc deal, but with a high £1,495 arrangement fee. It would cost £1,380 a month, or £34,616 in total over the two years.
Cumberland Building Society is offering the cheapest three-year deal.
Cumberland is charging 1.95pc on its three-year fix, with a £699 arrangement fee. Total repayments would be £885 a month, or £32,559 over three years, including the fee.
HSBC ‘s three-year fixed rate at 2.19pc comes with no arrangement fees. Total repayments would be £910 a month, or £32,747 over three years.
Post Office has a 1.89pc three-year fix, with a large £1,495 fee. Total repayments would be £879 a month, or £33,135 over the three years.
For those with a 10pc deposit, Coventry Building Society offers the cheapest deal with its three-year fixed-rate mortgage at 3.15pc with a £999 fee. Repayments would be £1,518 a month, or £55,663 over the three years including the fee.
Co-op has a 3.09pc deal with a £1,499 fee. The monthly repayments would be £1,509 and the loan would cost £55,807 over the two years.
HSBC offers the best five-year fixed-rate mortgage at 2.19pc with a £999 fee. The monthly repayments would be £910. and £55,578 over the term.
Cumberland Building Society has a 2.34pc deal, with a £199 arrangement fee. The mortgage would cost £925 in monthly repayments, and £55,715 over the five-year term.
First Direct is charging the same 2.19pc rate as its parent HSBC, but with a large arrangement fee of £1,450. The deal would cost £910 a month, or £56,029 over the five years.
For those with a 10pc deposit, HSBC offers the cheapest deal with its five-year fixed-rate mortgage at 2.88pc, which comes with a £1,499 fee. Repayments would be £1,474 a month or £89,950 over the five years.
HSBC also offers a 3.38pc deal with a £999 arrangement fee. Borrowers would pay back £1,557 a month, or £94,405 over the period.
Nationwide is charging 3.14pc with a £999 arrangement fee. Monthly repayments would be £1,011 and the deal would cost £122,343 overall.
Nationwide also has a 10-year deal priced at 3.24, however it has no arrangement fees. Monthly repayments would be £1,022 and the overall cost £122,671.
For those with a 10pc deposit, Nationwide is also the cheapest option with its 4.04pc deal, with a £999 arrangement fee. Monthly repayments would be £1,670 and £201,357 in total.
If you re considering fixing for 10 years don t forget to factor in the effect of early repayment charges. Some deals are more expensive to end early than others.
Use our mortgage calculator to work out how much you will need to repay on your mortgage.
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