Five-year mortgage fixes at all-time low

Last week Tesco Bank launched a record low five-year rate at 1.78% with a £995 fee for those borrowing up to 60% of their home's value.

For borrowers with a similarly hefty chunk of equity in their home, HSBC is offering 1.79%, Metro Bank 1.94% and Skipton 1.82%.

The cuts come despite the cost of funding for lenders rising over recent months. This is because City markets expect a rise in the base rate at some point in the near-ish future.

That usually leads to rate rises but David Hollingworth of L&C mortgage brokers says "fierce competition means lenders have sharpened their rates" – which has reversed that headwind.

If you're thinking of a five-year fix or any other mortgage, download our FREE 2017 guides for Remortgaging or for First-Time Buyers which explain all the key info. And benchmark your best deal with our Mortgage Best Buys tool.

Who are five-year fixes best for?

They're usually for those who have no plans to move in the next five years and want the security of locking in a set, cheap rate for a decent spell.

The risk is that if you exit the deal early – a work move overseas, for example – you can end up paying a nasty penalty of up to 5% of your outstanding mortgage. And while you may be able to port it (ie, move your mortgage to another property), you may have to also pay a higher interest rate on new borrowing.

How much could it cost you?

Take two of the market's most competitive rates right now: Tesco Bank's five-year fixed rate at 1.78% and Yorkshire Building Society's two-year fix at 1.16%.

On a £150,000 mortgage debt, the Tesco Bank deal would cost you approximately £38,000 over the deal's five years, including its fee but excluding legal and valuation costs. The deal is for those borrowing up to 60% of their home's value (known as the loan-to-value ratio, or LTV), with a £995 fee.

With the same borrowing, Yorkshire Building Society's deal – and comparable subsequent two-year fixes over the five-year period including fees (which would need to be paid three times over the period) – would cost you approximately £39,000. This deal is for those with a 65% LTV with a £1,495 fee, and again excludes legal and valuation costs.

In this case a five-year fix works out slightly cheaper – and you could save even more if the cheapest two-year deals become more pricey.

You can do your own calculations for rates you find using our Mortgage Cost Assessment calculators.

What if I'm not near the end of my mortgage?

If you're within up to seven months of the end of your mortgage term, you may be able to lock in a good rate now ahead of any market rises.

For full info on how to find these deals, and the risks, see Long lock-in mortgage help and always contact a mortgage broker if you're unsure.

You may also be able to save if you're on a pricey fix – as long as your early-repayment fees aren't too exorbitant.

Use our Ditch your fix? tool to check if you can save by switching from a pricey fix.