I was told I picked the wrong mortgage as interest rates were certain to fall, says HELEN CRANE - now I'm saving money

It will soon be two years since my partner and I bought our first home.

This fact is quite astonishing to me. It feels like just weeks ago we were harassing our conveyancer, stuffing our possessions into a moving van and gleefully waving goodbye to the trials of renting.

As a money journalist, the milestone made me think about the advice we got when taking out our first mortgage.

In summer 2024, we took out a five-year fix.

No one thought we were doing the right thing. Inflation was falling from its savage highs during the cost of living crisis, and while Bank of England interest rate cuts hadn’t started yet, they were considered a dead cert.

Two-year deals were therefore far more popular at the time despite being more expensive.

Two years ago I thought I'd made a terrible mortgage decision - but now it is paying off, says Helen Crane

Mortgage rates are certain to be lower in two years’ time, said a financially savvy friend.

Our broker also told us to go for the shorter option – though this isn’t uncommon, given that homeowners remortgaging more frequently gives them an extra bite of the fees cherry.

To be honest, I wasn’t sure myself if we were doing the right thing. What swung it for the five-year fix in the end was that it would save us about £100 per month.

Having put down a chunky deposit I reasoned that we could use every extra penny we could get in the short term, even if it cost us more overall.

Looking at mortgages with hefty £1,500-plus arrangement fees, I also didn’t like the idea of paying that again in so little time.

So we crossed our fingers and fixed for five years at 4.8 per cent.

Just weeks later in August 2024, the Bank of England cut the base rate for the first time since it started its hiking cycle in 2022. Almost instantly, mortgages started to drop.

I came down with a severe case of rate regret. I’d tap the best rates into This is Money’s mortgage cost comparison tool, working out that our monthly payments could have been £50 a month cheaper if we’d just bought our flat a bit later, then £80. When it went past £100 I stopped running the numbers.

So two years on, where are mortgage rates – and was our decision right?

I’m pleased to report the mortgage gods have smiled on us. A quick check on This is Money’s mortgage finder shows the cheapest I could get if I remortgaged today on the same terms would be a two-year fix at 5.19 per cent.

If the mortgage balance stayed the same (which it obviously hasn’t – but to make it a fair comparison) we’d be paying £103 more each month. On a five-year fix, the cheapest would be 5.26 per cent.

But I’m not writing this to say I told you so, or to suggest I’m some kind of mortgage oracle. I could easily have made the wrong call, because it all comes down to luck.

While we can pore over forecasts on inflation and interest rates, no one can predict them to a tee – even less so global shocks such as the pandemic or conflicts in Ukraine or Iran.

And even if they could, people have lives to live and reasons to move house that don’t revolve around where we are in the interest rate cycle.

My colleague Ed Magnus wrote this week about the homeowners who took out mortgages in 2021 and 2022 and are rolling off 1 per cent fixes to today’s rates of 5 per cent - something many never would have expected.

Even if the Bank of England does hike rates, we’re now in a different world.

I could well be proved wrong, but I think we are in a slow and steady era of boringly stable mortgage rates – and the kind of payment shocks these people will experience won’t be seen again for a long time.

So how on earth do you choose between a two and five-year fix?

I’d ask yourself three questions.

What does it cost? It isn’t just a question of comparing rates. In fact, the rate may hardly come into it at all right now as two and five-year fixes are a hair’s breadth apart at 5.91 per cent and 5.94 per cent according to Moneyfacts.

What could be more important is arrangement fees, which can now reach almost £2,000 on some mortgages.

Paying that every two years, rather than every five years, makes a difference – especially if you add it to the mortgage balance and the interest snowballs.

Will I move house soon? Some mortgages can be ported to a new property, but it isn’t always possible – especially if you’re upsizing or downsizing.

If you take a five-year fix but need to move and get a new mortgage after three, your lender will probably impose early repayment fees.

These are often between 1 per cent and 5 per cent of the whole mortgage amount so it could cost you thousands. If your plans are uncertain, I’d play it safe and fix short.

Can I be bothered? The cheapest option isn’t always the best option, especially if it involves extra work. Remortgaging takes effort, and on a two-year fix you’ll need to start exploring your options as early as 18 months after you move in to get the best deal.

If you’re like me, this time span will feel a lot shorter. When I’d lived in my flat for a year and a half, I still hadn’t got around to changing my doctor’s surgery or disposing of the hairy rug the sellers left behind that’s rolled up in the basement.

The penalty for forgetting to remortgage in time is high, as you’ll be placed on your lender’s standard variable rate which can be up to 7 per cent.

If the difference in monthly payments isn’t much, a five-year fix could buy you an easier life. What’s not to like about that?

Have you been lucky or unlucky with fixing your mortgage, and how do you decide? Let me know: editor@thisismoney.co.uk

How to find a new mortgage

Mortgage rates have jumped as conflict with Iran has driven up inflation expectations and dashed hopes of interest rate cuts.

If you need a mortgage because you are buying a home, or your current fixed rate deal is due to end, you should explore your options as soon as possible.  

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with expert mortgage advice.

Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Or use L&C’s online Mortgage Finder to search thousands of deals from more than 90 different lenders to discover the best deal for you.

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage