Fixed rate mortgage, what is it?

If you take out a fixed-rate mortgage, the interest rate on the deal will be locked in place for a fixed period, whether that be two, three, five or 10 years.

For example, you might get a five-year fixed-rate mortgage charging 2%. You are guaranteed to pay that rate for the whole five-year period, whatever happens to wider interest rates or the economy.

This gives a borrower certainty in knowing how much their monthly mortgage repayments will be. For many households that is a major help in budgeting. Just a 0.5% rate rise could add hundreds of pounds to your monthly mortgage bill.

Rates that aren't fixed are known as "variable" rate mortgages. These include tracker mortgages, for example, they track a central rate such as the Bank of England's leading Bank Rate.

But the more common variable rates are known as "standard variable rate" or SVR mortgages. These are the rates borrowers move on to at the end of their fixed-rate deal. They are currently far higher than most fixed-rate deals and may be as high as 4-5%.

SVRs don’t track the Bank Rate directly but are instead set by individual lenders and go up or down at their discretion. However they do tend to move more or less in line with wider interest rates, as set by the Bank Rate. So if you see that interest rates are on the rise, you should expect your SVR to go up sooner or later.

Lenders should contact you before your current deal expires, but many customers might overlook these and end up automatically shifting to the SVR without knowing.

If you would like to know more about a new or re-mortgage please do make contact and one of our independent advisers will be happy to assist.