Can you get a 1-year fixed mortgage and what are the alternatives?

Fixed-rate mortgages can be arranged over 1-year but they are rare. The vast majority of fixed-rate mortgage deals are more commonly arranged over a 2, 3, 5 or 10-year period. In this article, we explain 1-year fixed mortgage rates, the pros and cons of choosing a fixed-rate mortgage deal, alternatives that you should consider as well as how to get the best mortgage deal for your circumstances.

You can search for a wide range of current mortgage deals using our mortgage rate comparison tool based on your personal circumstances.

What is a 1-year fixed-rate mortgage?

When you choose a 1-year fixed-rate mortgage the interest rate charged on your mortgage loan will be fixed for one year from when the mortgage deal starts. This means that the interest rate and in turn, your monthly mortgage payment will neither increase nor decrease for a year.

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How does a 1-year fixed mortgage work?

When you arrange a fixed-rate mortgage, your monthly mortgage payment is fixed for the period of your mortgage deal. This means that your mortgage payment will not change as the rate of interest charged will remain the same throughout the fixed period and in the case of a 1-year fixed-rate mortgage this would be a period of 1-year.

Most fixed-rate mortgage deals come with exit penalties that could be made up of an exit fee and early repayment charge (ERC) if you were to switch your mortgage to a new contract or deal within the fixed period.

Once the 1-year fixed-rate period comes to an end, your mortgage loan rate will move to your lender’s standard variable rate (SVR) which is also referred to as the reversion rate. Instead, most borrowers switch to an alternative fixed-rate deal (possibly with another lender) that takes over from the original mortgage deal so that are not charged the SVR as this is usually comparatively high.

Pros and cons of a 1-year fixed mortgage

Pros

A fixed monthly mortgage payment that will not change for 1-year
Easier to budget costs for the period of the mortgage deal
Ability to switch mortgage deals after 1-year without paying early repayment charges

Cons

Early repayment charges will apply if you switch deals with the 1-year fixed period
If rates are higher at the end of the year, your mortgage payment will increase
You may have to pay another mortgage product fee to switch to another deal

Which lenders offer a 1-year fixed-rate mortgage?

Currently there are very few lenders that offer a 1-year fixed-rate mortgage deal. Barclays offers a 1-year fixed-rate deal for existing customers, up to a 90% loan-to-value. Nationwide is offering a 1-year fixed-rate mortgage deal for buy-to-let purchase and remortgage customers with an initial rate of 3.49% on loan-to-value from 70% to 80%. Rates change on a regular basis so it is best to speak with a mortgage specialist* who will keep you abreast of any new mortgage products that come to market.

Alternatives to a 1-year fixed-rate mortgage

Despite the security that a 1-year fixed-rate mortgage can offer you, there are potential disadvantages as discussed above so it is wise to consider some alternative arrangements that may suit your circumstances. We have described these below.

2 or 3-year fixed-rate mortgage

2 and 3-year fixed-rate mortgage deals are far more widely available in the mortgage market than 1-year deals. They may also offer a more competitive rate of interest than a 1-year mortgage deal, lowering your monthly payment. If you are worried about being tied into the mortgage deal then you should calculate how much you may save on a longer fixed-rate mortgage deal and weigh this up against the flexibility you are looking for.

You will find more information and the best current fixed-rate mortgage deals in our article, "Best fixed-rate mortgage deals in the UK".

Tracker mortgage

If you are looking for a 1-year fixed-rate mortgage then it is likely that you wish to avoid fixing your mortgage rate for longer. It could be that you believe interest rates will reduce in 12 months or that you want to change your mortgage arrangement without penalties after a year. Tracker rate mortgages can provide the flexibility to switch mortgage deal or change your mortgage arrangement with reduced exit penalties. However your interest rate can fluctuate, making the monthly mortgage payment variable and in turn you may find it more difficult to budget. Also, tracker rate mortgages may be higher than an equivalent fixed-rate deal so your monthly mortgage payment could be higher than if you were to choose a fixed-rate mortgage.

To learn more, read our article, “Tracker or fixed-rate mortgage: Making the right choice”

Standard variable rate mortgage

This option could work for borrowers who are looking to remortgage from an existing mortgage deal that is due to come to an end. Standard variable rates or reversion rates, as they are sometimes called, are usually relatively high but being on this rate can mean that you don’t have to pay any exit charges to move to another mortgage deal. You can choose to pay the higher rate for a period if you are not ready to switch to a new deal. Again, this could be because you wish to delay fixing a new rate as you believe rates may come down or because you want to make changes to your mortgage arrangement. It is wise to calculate the additional cost over the period you intend to stay on the standard variable rate compared with the best fixed-rate to weigh up whether you are better off or not.

You can read more about this type of mortgage in our article, “What is a variable rate mortgage and is it a good idea?”

How to compare mortgage deals

The mortgage market is full of different types of mortgage solutions that are built to meet the needs of homebuyers with varying needs and circumstances. Choosing the right mortgage solution can therefore be tricky without some expert guidance. You will need to consider, how much you wish to borrow and the loan-to-value you can achieve based on how much deposit you have to put towards your home purchase. Other factors that will play a large part in choosing the right mortgage deal are your age, how long you wish to repay your mortgage over and your short to medium-term plans.

Mortgage brokers are experts who have a thorough knowledge of the mortgage market and use this to guide homebuyers to the best mortgage solutions. They will usually meet with you or speak to you over the phone to gather your personal information before presenting mortgage options for you to consider. Once you decide which mortgage you wish to apply for, the mortgage broker will usually assist you with completing application forms and follow up with the lender to ensure your application is successful.

If you do not have a mortgage broker you can source one that is local to you by using the online financial directory, Vouchedfor* where you will be able to select based on the mortgage broker's expertise as well as customer reviews. Alternatively, you can contact the free online mortgage broker, Habito* where the advisers have access to over 90 lenders' mortgage deals and provide online mortgage advice to homebuyers nationwide.

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