Should I Get a Fixed Rate Mortgage?

We are frequently asked whether to go for a fixed rate mortgage or variable or discount or tracker rate.

The answer to this question is a personal one based upon two things:

1. Do I want my monthly mortgage payment to remain the same for a period with the stability of knowing that I will be unaffected and can still afford to pay my mortgage each month over of the period if interest rates may rise whilst if interest rates fall, I accept that I may pay more?
2. Do I prefer to gamble on my mortgage rate in the hope that interest rates will fall over the period meaning I pay less and accept that if rates rise, I will pay more?

We can all make a judgement on our preferred option, but we suggest once that decision is made, you do not ‘look back in anger’.  It was a gamble after all.

Over the last 15 years, interest rates have been low and during the pandemic lockdown, Bank of England rates went virtually down to zero meaning mortgage rates fell.

Covid-19 Warnings of Inflation and Interest Rates

• We warned you all during our covid-19 video series through those difficult months that £500bn of UK government borrowing to fund grants, furlough pay, vaccination research etc would need to be paid for.  Most western central banks have a monetary strategy to allow inflation to build to devalue government debt over a period before it is due to be repaid say in 20-25 years and then control inflation with interest rates.
• We warned that governments would stimulate inflation (and they did with ‘eat out to help out’ as well as stamp duty holidays etc) for a period to devalue debt.
• We forecast inflation at 5% pa over a 10-year period, which cumulatively is 63% and then a further 10 years inflation at trend target of 2% takes cumulative inflation over a 20-year period to 77%.
• That’s a 77% devaluation of fixed rate government gilts/bond debt before it is repaid.
• We warned that you should prepare for this and allow for increased costs of living and interest rates then increasing to combat inflation, so we suggested considering fixing your mortgage rate at such low levels.

Russia then invaded Ukraine, oil and fuel prices went up, wheat prices went up, in fact inflation more than doubled what we had forecast to make things even worse as we know.

Interest rates are now even higher than we thought the would be to combat much higher inflation and it looks like higher interest rates will be around for a while, but we are all expecting inflation to fall and then interest rates to fall.  That said, recent US inflation figures have climbed again, and the Federal Reserve kept interest rates higher again this week.  We suggest interest rates may not fall until Autumn 2024 or even into 2025.

To Fix or Not Fix At This Difficult Time

• We usually go for 5-year fixed rates for stability.
• We expect interest rates to fall later this year/early next year, but our fixed rate mortgage was due last month.  Therefore, we have locked into 2-year fixed rates with the gamble that rates will fall over the next 2 years when we are ready to remortgage again.

To Fix or Not To Fix In Normal Economic Cycle

As suggested at the start of the video/article.  Consider points 1 and 2 above.  Do you fix for stability and accept rates my rise or fall or do you go for the gamble in the hope that interest rates may fall in the future?

Contact  Call Back  Calculators  Our Fees