Fixed mortgage deals get cheaper – now from 3.8% despite base rate rise – so should you fix?

Interest rates on new fixed mortgage deals continue to drop

A number of major mortgage lenders, including Barclays, Coventry Building Society, First Direct, HSBC, NatWest, and TSB, have significantly improved rates on their fixed deals over the past two weeks.

In February, brokers told MoneySavingExpert.com they expected lenders to cut rates on fixed deals. But while this did happen, the rate of improvement slowed in March – mainly owning to volatility in the financial markets. Yet now the pace appears to have picked up again.

Currently, five-year fixes are as low as 3.83% – the lowest fixed rate we've seen since October 2022 – while you can get a 10-year fix at 3.98%.

The table below shows the trajectory of fixed-rate deals over the past few months.

The table also shows that many longer-term fixes continue to be cheaper than shorter-term fixes right now, a situation that has been the case since last autumn.

Typically, the longer you fix for, the higher the interest rate. This is because the lender is guaranteeing your rate while taking on the risk that rates will rise in future. Yet over the past six months, rates have actually been better the longer you're fixing for – something known as an 'inverted yield curve'.

Essentially, as lenders only expect this period of higher interest rates to be a short-term issue, they are willing to offer better interest rates on longer-term deals.

You can do a deeper dive of current mortgage rates by using our Mortgage Best Buys tool.

The best fixed deals now trump top trackers on rate

Right now, interest rates on fixed mortgages and variable deals are heading in opposite directions. This trend has only accelerated since the Bank of England raised the base rate (again) to 4.25% in March – a move which means variable deals, such as trackers, have become even more expensive.

Six months ago, the top fixed-rate mortgage deals were around double the cost of the top trackers: the cheapest two-year fix was around 5.52%, while the equivalent tracker was around 2.94%. Yet things have moved in the opposite direction since then, with today's cheapest two-year fix at 4.08% and the top two-year tracker at 4.39%.

There are two reasons behind this. Firstly, gilt yields and swap rates – which mainly impact fixed mortgage deals – have stabilised over the past six months, meaning lenders are happier to price their fixes lower. Secondly, the Bank of England base rate – which most tracker deals are linked to – has increased several times over the same period, meaning trackers have gone up in tandem.

This table demonstrates how tracker mortgages have been getting more expensive:

Where will mortgage interest rates go from here?

Owing to recent instability in the financial market – after the collapse of Silicon Valley Bank and Credit Suisse, and higher-than-expected inflation figures – mortgage brokers are wary about predicting where interest rates could go from here.

Peter Gettins of mortgage broker L&C said that, with swap rates stable for the time being, there might be scope for interest rates on fixed deals to come down more, though not by much.

And with the base rate expected to peak at between 4.25% and 4.5% this summer – and possibly then start coming down – trackers might eventually become cheaper later this year too.

Here it's worth pointing out that the International Monetary Fund expects interest rates in the long term to return to somewhere close to pre-coronavirus levels 'once inflation is tamed' – though notably it didn't put a timescale on this prediction.

But Mr Gettins warned: "If we've learned anything over recent months (and indeed years), it should be that the outlook can change in the blink of an eye. Barring any unforeseen shocks, the near-term looks broadly stable, with perhaps rates coming down a bit more. However, the phrase 'expect the unexpected' has rarely felt more appropriate."

Why you should still consider a new deal with your existing lender

Where you need a new mortgage deal, you've got two options: switching your deal with a new lender (known as 'remortgaging'), or getting a new deal with your existing lender (known as a 'product transfer').

While not traditionally the case, recently product transfers have been highly competitive – in some cases, lenders have actually been offering better rates to existing borrowers than new customers, so do consider product transfer rates as well as remortgage rates. The main differences between product transfers and remortgaging are:

• Fees are often lower with product transfers. You'll normally have to pay an arrangement fee, but that's often it. Legal fees are uncommon and you're unlikely to be charged a valuation fee (though this can be the case with remortgages too).

• There's not normally an affordability assessment with product transfers, which makes the process quicker. So if you're not borrowing more money, this means you could be accepted for a new rate almost instantly. With remortgaging, as affordability assessments form a key part of the switching process, you might struggle to be accepted with a new lender, particularly if you're on the border of affordability, and the process will normally take longer.

So should you fix?

While the premium for fixing is lower right now, if you'd rather wait before fixing a new mortgage (perhaps because you believe rates will come down further), consider talking to a broker about the possibility of temporarily moving on to a tracker mortgage. Some trackers let you move to a fixed-rate deal penalty-free at a time of your choosing, giving extra flexibility.

Yet the argument in favour of this is weaker than it was a few weeks back, as the gap between the best fixes and trackers is more substantial – meaning you'd need fixed rates to come down enough to compensate for having been on a higher tracker rate in the meantime.

Remember that variable-rate deals such as trackers also come with the risk of your mortgage payments going up as well as down during the term of the deal (see more on the differences between variables and fixes). This is an important factor, especially if you're already near the top of your budget.

Always talk to a broker before you remortgage

For those who need a new deal, speaking to a mortgage broker is vital. As well as advising you about the possible rates you could get, they'll be able to indicate which lenders are more likely to accept you based on your personal circumstances. They'll also be able to advise about whether it's best to remortgage or product transfer.

Read our Cheap mortgage finding guide for more on how to compare mortgage brokers.