Enquiries for 2-year fixed and variable-rate mortgage deals have surged as borrowers attempt to navigate the predicted rise in interest rates. The ongoing conflict in the Middle East has caused instability across markets, making mortgage rate movements unpredictable. Borrowers concerned about missing out on rate reductions, should they transpire, will be keen to avoid locking themselves into long-term fixed mortgage deals while weighing this against the possibility of further rate rises.
Borrowers seek flexible mortgage options
Borrowers commonly favour a fixed-rate mortgage deal that offers certainty and the ability to budget over a period of time, as well as providing some protection against sudden rate increases. However, the current climate of relatively high interest rates means borrowers are increasingly seeking ways to balance the security of a fixed rate with the flexibility to switch to a lower rate if and when it materialises.
Statistics from Moneyfacts UK show that searches for short-term fixed-rate mortgage deals and variable-rate mortgage deals rose over the 30 days to 2nd April compared with the previous month. Two-year fixed rate mortgage deal searches increased by 13%, making up 55% of overall searches, while 5-year deal enquiries dipped by 9% to just 25% of searches.
These trends suggest borrowers may be choosing to accept some short-term pain and uncertainty to avoid missing out on possible rate reductions in the future. The decision won’t be easy given that mortgage rates reached an inflection point two weeks ago, when the average 2-year fixed rate overtook the average 5-year rate, making short-term fixes more expensive. Borrowers face a tough choice: choose a slightly lower rate, fix for five years and potentially miss out on a lower rate if the market becomes more favourable before the five years are up, or lock in a higher rate for two years and hope that rates fall by the time the deal ends. Either way, the immediate pain of higher interest rates will be unavoidable - average two and five-year fixed rates have increased from 4.86% and 4.97% to 5.89% and 5.77%, respectively, in just one month. You can find the best mortgage rates for a variety of needs regularly updated in our article, "Best mortgage rates in the UK".
Variable rate mortgage enquiries on the rise
Although variable-rate mortgage deals make up a far smaller share of overall enquiries, there has been a spike in searches for this type of deal among borrowers seeking a mortgage to move home. Moneyfacts data shows that variable-rate mortgage searches among home movers rose by 47%. Home movers generally favour five-year fixed deals to support what is normally a larger mortgage loan, but also because people generally live in their second or third home for longer than their first home. The data suggests there may be appetite among those with larger mortgages and perhaps larger deposits from built-up equity, to gamble on a variable rate.
A variable-rate deal could offer the flexibility to switch and lock in a new deal whenever rates fall without paying early-repayment fees - particularly appealing if you think rates will fall in the short term. However, it would also mean exposure to rate increases should they continue to rise.
Although the rise in variable-rate enquiries is notable, they remain a much less popular option overall, making up only 13% of all enquiries in March this year, and the popularity of this type of mortgage deal fell among first-time buyers and those remortgaging to a new mortgage deal at the end of their current deal.
How to choose the right mortgage deal when rates are high
The current inflationary pressures driving rate increases are impacted by global events and are therefore outside the remit of domestic policymaking, making it trickier to assess how things may unfold over the coming months. Even though the current market may be volatile and unpredictable, the fundamental steps for choosing a mortgage remain the same.
Before making decisions, take stock of the risks associated with certain types of mortgages and ensure that you can financially withstand the consequences of further rate rises if these transpire before making your decisions. Choosing a short-term fixed rate may be more expensive in the current market and require remortgaging sooner - this will suit some households, but others may benefit from greater long-term stability. If you are considering a variable rate mortgage, you will find more information about this type of mortgage in our article, “What is a variable rate mortgage and is it a good idea?”.
In relatively high-interest-rate markets, it can be easier to forget that there is still merit in shopping around for the best mortgage deal based on your particular financial situation. All too often, homebuyers either go directly to the lender they bank with or to the one that holds their existing mortgage. This could mean overlooking cheaper or more suitable mortgage deals elsewhere, simply because the process is perceived as more arduous. Affordability checks have eased in recent years, making it easier to qualify for your mortgage loan, so you may be surprised at the savings you could secure by widening your search.
You can search over 90 lenders' mortgage deals using our mortgage rate comparison tool - you may not qualify for all of these, but it will give you a barometer for what you can expect. It can be extremely helpful to then seek guidance from an independent mortgage broker* who can advise you based on your needs, without bias towards any particular lender.
If you do not have a mortgage broker, you can source one using the online directory for financial professionals, Vouchedfor*. It lists brokers based on your location, and you can find reviews of the services they provide from customers who have used them. Alternatively, you can contact the online mortgage broker Habito*, which provides free advice and guidance over the phone and online.
If you are remortgaging at the end of your current mortgage deal period and are likely to face financial hardship due to higher interest rates, you may be able to request extra help with arranging your remortgage. Many lenders are signed up to the government's mortgage charter, which means you may be offered additional ways to manage your mortgage. These could include extending your mortgage term or switching to an interest-only mortgage to reduce your monthly mortgage payment to an affordable level. The charter also asks that lenders provide support without adversely affecting your credit score or requiring additional affordability checks.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito, Vouchedfor
MTTM AI (beta) 
