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2-Year Or 5-Year Fixed Rates… The Pros & Cons Of Each

The mortgage market is particularly tricky to navigate at the moment and, even though house prices around the country are falling, rates are still high and there’s a lot of chopping and changing going on, which is creating a lot of uncertainty right now.

Although rates are high, they are coming down and have been doing so regularly over the last couple of months and it’s possible that this will continue as we head into 2024… but the situation is precarious and people are sure to still be wary about property investment at the moment. 

It’s no surprise that many are having second thoughts about selling their house and moving on, with staying put an increasingly attractive option in the face of all this fluctuation.

Even if you do decide not to sell up and relocate, it’s likely that you will have to sort out a new mortgage product at some point, when your current deal comes to an end.

Most people at the moment are opting for fixed rate deals to give them a bit of certainty over how much they’ll be repaying each month – and, given that the cost of living crisis is showing no real sign of slowing down just yet, this seems like a good strategy to adopt, at least for the moment.

If you are thinking of taking out a mortgage or if you’re approaching the end of your current deal, now’s the time to start thinking about whether a two or five-year fixed rate deal would be the most appropriate for you. 

These are the most common fixed rate products, although you may find some lenders willing to offer three years or even ten years, depending on the situation.

When it comes to making your decision, you need to take into account what’s happening in the wider economy and what you think will likely happen in the future. If you think rates are likely to fall relatively soon, a two-year fixed rate product could be a good route to go down, whereas if you think they’re likely to continue going up, you might prefer a five-year deal.

The pros and cons of two-year deals

The general expectation is that interest rates are likely to hit their peak soon, which will see the base rate plateau for a bit before dropping back down, with mortgage rates following suit.

This means that between booking your new mortgage deal and completing, you could be offered significantly lower rates, it’s worth checking a few weeks before completion. Note, however, that it’s unlikely we’ll see rates fall back to the super-low levels they were at pre-pandemic, so factor this into your decision and budgeting, as well.

In terms of cons, you’ll likely find that two-year fixed products are more expensive than five-year deals. This is because the general view is that interest rates will fall from where they are now over the next few years, which lenders are factoring in over the long term.

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