The UK Mortgage Centre has advised homeowners to consider 5-year fixed mortgage deals over 2-year deals, following the Bank of England’s (BoE’s) recent base rate cut.
Sam Fox (pictured), founder of the UK Mortgage Centre, said: “Earlier this month the Bank of England took a major step by announcing a long-awaited base rate cut.
“It has sparked a flurry of questions from homeowners eager to understand how this change will impact their mortgage repayments.
“From deciding between a two-year or five-year fixed deal to considering longer-term fixes, many homeowners are keen to know whether the rate cut offers an opportunity to reduce costs or adds uncertainty to their financial future.”
Fox said those on fixed-rate mortgages would not notice an immediate difference in their monthly payments, as the recent rate cut does not affect existing fixed deals.
He noted that repayments stay the same for the full length of the fixed term, whether it is two, five or more years.
Additionally, Fox added that anyone thinking about remortgaging before their current deal ends should be aware of early repayment charges (ERCs), which can be substantial and may cancel out any savings from switching.
He advised speaking to a mortgage broker for advice tailored to individual circumstances before making any decisions.
Furthermore, Fox said tracker and variable rate mortgage borrowers would notice an immediate effect.
Fox added: “The group most affected by the rate cut will be homeowners with tracker or variable rate mortgages.
“For those on tracker mortgages, your repayments should drop in line with the new base rate almost immediately, with adjustments often occurring within the same month.
“Variable rate mortgages may take a little longer to adjust depending on the lender, but most will likely pass on the reduction in full.”
He said: “However, it’s important to remember that variable-rate mortgages come with risks. While you’ll benefit from this immediate cut, there’s also the potential for future rate hikes, particularly as inflation concerns persist.
“If rates rise again, your repayments could quickly increase, so it’s essential to weigh the short-term relief against long-term unpredictability.”
Fox said that 2-year fixed rate mortgages might save money in the short term but could mean uncertainty later on.
He noted that lenders may offer lower initial rates on two-year deals now, as the market expects further rate cuts.
Fox added that a 2-year fix might suit people who think rates will keep falling or those planning to move home soon.
However, he warned that this option comes with risks, as rates could rise again if inflation increases or if the BoE changes course.
Fox said this could mean higher repayments when the deal ends, so 2-year fixes are better for borrowers comfortable with flexibility and willing to review the market again after two years.
Additionally, Fox said 5-year fixed rate deals offer more stability and predictable payments for those planning to stay in their home for longer.
He pointed out that current conditions mean 5-year fixes could even be cheaper than 2-year deals, and locking in now could protect against future rate rises, helping homeowners benefit from lower repayments over the whole term.
Fox said there are several key factors to think about before choosing a mortgage deal, noting that ERCs are usually higher on 5-year fixes, so if your plans change, leaving the deal early could be expensive.
He noted that the loan-to-value (LTV) ratio matters too, as having more equity in your property can help you secure better rates on either type of deal.
Fox said flexibility is also important if you plan to move house or make overpayments, with 2-year deals generally offering more freedom for people expecting changes.
He added that while market forecasts can be useful, the future is never certain, so it is wise to keep an eye on economic developments and regularly reassess your options.
He said: “Whether you opt for a two-year or five-year fixed deal depends largely on your personal circumstances, the stability of your finances, and your expectations of future rate movements.
“While a two-year fix offers flexibility, a five-year deal can provide long-term security.
“The most important thing is to stay informed and consult with mortgage professionals, like those at UK Mortgage Centre, before making any decisions.
“With the right advice, you can choose the best path forward for your financial future.”
