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MORTGAGE ALERT: Fixed deals cheaper than variable

MORTGAGE ALERT: Fixed deals cheaper than variable

Category: Mortgages
Author: Leanne Macardle
Date: 26/03/2018

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

If you're looking for a mortgage, you generally have one of two options – you can opt for the security of a fixed rate, or the lower cost of a variable deal. But does that still ring true? While it's traditionally been the case that variable rate mortgages are cheaper, research from Moneyfacts can reveal that this may no longer be true…

No need to pay more for peace of mind

Our figures show that, while rates are at record lows for both variable and fixed rate mortgages, the difference between the two has shrunk to the point where variable rate deals may not necessarily offer the lowest rates. This is particularly apparent among lower LTVs, with our figures showing that the lowest two-year fixed rate mortgage available at 60% LTV currently stands at 1.05%, whereas the lowest variable rate at the same level is priced at 1.08%.

A Year Ago 6 Months Ago Today
Lowest Two-Year Fixed Rate Mortgage at 60% LTV 1.58% 1.37% 1.05%
Lowest Two-Year Variable Rate Tracker Mortgage at 60% LTV 1.54% 1.09% 1.08%
Difference in Rates 0.04% 0.28% -0.03%
Source: Compiled: 27.7.15

As the table shows, this is in sharp contrast to this time last year, when the lowest rates stood at 1.58% and 1.54% respectively – and just six months ago, variable deals were 0.28% cheaper (the lowest fixed rate at 60% LTV stood at 1.37%, while variable rate deals had already fallen sharply with the cheapest being 1.09%).

However, fixed rates have fallen even more rapidly since then, which means that today, the picture has reversed – and in some cases, borrowers can now pay less for the security of a fixed rate deal. "A variable rate tracker mortgage can no longer be considered the best way to ensure lower monthly repayments," said Charlotte Nelson, finance expert at Moneyfacts, particularly in light of Mark Carney's recent comments about the path of base rate.

"Borrowers on a variable rate will certainly notice a difference in their monthly repayments when the inevitable happens and base rate rises", added Charlotte, with calculations showing that opting for the lowest variable rate at 60% LTV today would cost a typical borrower £442 a year more than the lowest two-year fixed rate if base rate goes up by just 0.5%. As it stands, "borrowers can essentially opt for an all-time low rate without the risk of it rising in the near future", so isn't it time to see if you can benefit?

Fixed rates can give you peace of mind as you'll know exactly what your repayments are going to be for the term of the deal, and that kind of security can be invaluable to help balance the household budget. When you can get that security for a similar price – or even cheaper – than a variable rate deal, it makes a lot of sense to give it a go.

There are plenty of great products you can choose from, too, but as Charlotte points out, you need to act fast! "These highly competitive fixed rate mortgages will only be on the market for so long and once they're gone, they're gone. Mortgage holders therefore need to act fast to secure the best deals while they have the chance." So, check out our best buys to see if you can take advantage of the market to beat the rate rise with a low-cost deal.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.