Homeowner's Mortgage Choice Paid Off Despite Expert Doubts

Two years after purchasing her first home, money journalist Helen Crane reflects on the mortgage decision that defied contemporary financial advice. In the summer of 2024, Crane and her partner opted for a five-year fixed mortgage at 4.8 percent, a choice met with skepticism from friends and their mortgage broker, who favored shorter-term deals.

At the time, inflation was declining from its peak, and predictions of impending Bank of England interest rate cuts were widespread. This led to a higher demand for two-year fixed-rate mortgages, despite their typically higher initial costs. Crane’s decision was primarily driven by a desire to save approximately £100 per month compared to the prevailing two-year deals, a saving she felt was crucial given a substantial deposit.

Shortly after their mortgage was finalized, the Bank of England began cutting its base rate, causing mortgage rates to decrease. This development led Crane to experience "rate regret," as she calculated that a delayed purchase could have resulted in monthly savings of up to £80. She used This is Money’s mortgage cost comparison tool to track these potential savings.

Now, two years into the five-year fix, Crane reports that current mortgage rates are less favorable than her own. A comparison of the cheapest available two-year fixes shows rates at 5.19 percent and five-year fixes at 5.26 percent. If her mortgage balance remained constant, remortgaging today on the same terms would mean paying over £100 more per month than her current rate.

Crane acknowledges that her choice was ultimately a matter of luck, underscoring the unpredictability of interest rate movements influenced by global events such as pandemics and international conflicts. She references a colleague’s report on homeowners who secured mortgages in 2021 and 2022 at rates around 1 percent and are now facing significant payment increases when remortgaging.

When considering mortgage choices, Crane suggests borrowers ask three key questions:

Cost Comparison

Beyond the advertised interest rates, arrangement fees can significantly impact the overall cost. Fees can now approach £2,000, and paying these every two years versus every five, especially when added to the mortgage balance, can lead to substantial interest accumulation. Current Moneyfacts data indicates two-year and five-year fixes are very close in rate, with 5.91 percent and 5.94 percent respectively.

Future Housing Plans

Early repayment fees, often ranging from 1 to 5 percent of the outstanding mortgage amount, can be costly if a borrower needs to move and secure a new mortgage before their fixed term ends. Porting a mortgage to a new property is not always feasible, particularly when changing the size of the home. For those with uncertain moving plans, a shorter fix is advised.

Effort and Convenience

Remortgaging requires effort, and with a two-year fix, borrowers must begin searching for new deals around 18 months into the term to secure the best rates. Failing to remortgage on time can result in being moved to a lender's standard variable rate, which can be as high as 7 percent. For those who prefer a simpler process, a five-year fix can offer greater peace of mind and reduce the administrative burden.

Crane concludes that while predictions can be made, unforeseen circumstances can drastically alter market conditions, making individual financial decisions a blend of strategy and chance. She believes the current market is entering a period of stable mortgage rates, unlike the volatility experienced by some homeowners in recent years.