Essentially, the definition of a “Fixed Rate” mortgage offer borrowers the ability to help budget for household expenses more accurately because they have an interest rate that remains constant for an agreed portion of the overall term of the mortgage - typically between fifteen and thirty years.

Unlike variable rate mortgages, the interest rate charged on fixed rate mortgages will not be influenced by changes in either the Bank of England Base Rate (BoEBR) or the lender’s Standard Variable Rate (SVR).  Rather, the interest rate on fixed rate mortgages will remain constant during the fixed rate period regardless of movements in interest rates on other financial products so there are no surprises.

The fixed interest period gives borrowers the stability they need to manage their household budget more effectively, which is why fixed rate mortgages are popular with first-time-buyers specifically young households.

Fixed rate mortgages are also popular and in demand during times of historically low interest rates. The majority of homeowners fix their interest rates while they believe the cost of borrowing is cheap, therefore locking in the low rates well into the future.

On the flipside, while fixed rate mortgages provide borrowers with some advantages, there are also several disadvantages.

Fixed interest rates are usually slightly higher than current variable rates. Also, If a fixed interest rate is locked in for a period of time and the variable rate for the same mortgage product remains lower throughout that same period of time, the borrower will pay more interest on their mortgage than required.

Additionally, once the fixed rate period expires, the interest rate will convert to the lender’s SVR. It is therefore advisable that borrowers assess your mortgage situation before the termination of the fixed rate period.

It is also important to note that most lenders charge an arrangement fee for their fixed rate mortgages. Therefore, borrowers should assess whether the estimated future savings in interest that can be made by fixing the interest rate is not outweighed by any upfront arrangement or brokerage fees that must be paid.

Borrowers, it’s a good idea therefore to assess the overall expected cost savings in combination with the ability to manage your household budget more effectively, against any upfront fees that may be charged, before applying for fixed rate mortgages.