Best 5-year fixed rate and tracker mortgages

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Overall representative example
If you borrow £178,000 mortgage over 25 years initially at 4.63% fixed for 60 months reverting to 6.99% variable for term. 60 monthly payments of £1002.56 and 240 monthly payments of £1214.16. Total amount payable £351,932.00 includes loan amount, interest of £173,552, valuation fees of £0 and product fees of £0. The overall cost for comparison is 6.2% APRC representative.

With the Bank of England (BoE) base rate having risen sharply from its record low of 0.1% in March 2020, mortgage rates are now rising from their lowest ever levels. If you’re thinking of locking into a low rate deal, here’s what you need to know about 5-year fixed rate mortgages.

How does a 5-year fixed rate mortgage work?

Banks use the BoE base rate, along with other economic factors, to determine how much interest they will charge on their mortgages (and other credit products). The BoE’s Monetary Policy Committee (MPC) usually votes on the base rate eight times a year, although the rate won’t necessarily change each time.

With variable rate mortgages the interest rate can move up or down in line with movements in the base rate. This means that if the base rate falls, so will your mortgage repayments, but if the base rate rises, your repayments will also go up.

In comparison, a fixed rate mortgage locks in your interest rate for a set period of time. As you might expect, with a 5-year fixed rate mortgage, your rate is set for 5 years. This means that no matter what happens to the BoE base rate, your mortgage interest rate, along with your monthly repayments, won’t change.

A fixed rate mortgage can be a good option for those who can’t afford for their monthly mortgage repayments to go up and who want to know exactly how much their repayments will be for the next few years.

The downside is that should you need to move home or change mortgage deals because your circumstances have changed, early repayment charges on 5-year fixed rate deals can be high – typically between 1% and 5% of the outstanding mortgage amount. Interest rates on fixed rate deals also tend to be higher compared to variable deals due to the security they offer.

At the end of the 5 years, your mortgage will typically revert to your lender’s standard variable rate (SVR). This is typically higher than most rates, so it’s worth switching to a new deal as soon as possible.

What types of 5-year fixed rate mortgages are available?

You’ll usually be able to choose from the following types of 5-year fixed rate mortgages:

Residential mortgages

If you’re buying a property to live in (as opposed to rent out), look for a 5-year fixed rate residential mortgage. You’ll usually need to put down a deposit of at least 5%, with the most competitive rates being offered to those who can stump up a deposit of at least 40%. Better rates are also offered to those with a good credit score.

Buy-to-let mortgages

You’ll need a specific buy-to-let mortgage if you plan to rent a property out. Deposits of between 25% and 40% are usually required and interest rates tend to be higher compared to residential mortgages.

Repayment mortgages

The majority of 5-year fixed rate mortgages are offered on a repayment basis. This means that a portion of the capital – the original amount borrowed – and a portion of interest is included in each monthly repayment. If you keep up with your repayments, your entire loan will be repaid by the end of the mortgage term – typically 25 years.

Interest-only mortgages

You may be able to take out a 5-year fixed rate interest only mortgage instead. With this type of mortgage, only a portion of the interest is repaid each month and at the end of the mortgage term, you’ll need to repay the original amount borrowed.

The advantage of interest-only mortgages is that monthly repayments are much lower. The downside is fewer lenders offer them and those that do will require you to have an approved repayment vehicle in place to ensure you can pay off the capital.

How to compare 5-year fixed rate mortgages

Once you have decided that a 5-year fixed rate mortgage is right for you, there are some easy ways to compare the mortgages available to help you select one that suits your needs. For example, it’s a good idea to take a look at the following:

Interest rate. This will have a direct impact on the amount you repay each month, so it’s worth comparing your options carefully to find a good rate.
Fees. Always check how much the arrangement fee is on each mortgage. Some mortgages with low rates of interest have high fees and you may find it’s cheaper to choose a higher rate mortgage with a low (or no) fee.
Repayments. Check how much you’ll repay each month and each year.
Early repayment options. Check how much you can overpay by each year (often this is 10%) and how much you’ll be charged for going over this amount. You should also check what fees apply if you repay your mortgage early. Early repayment charges are often tiered so that the nearer you get to the end of the deal, the less you’ll pay.

Pros and cons of a 5-year fixed rate mortgage

Pros

Repayment security. Your repayments won’t change for 5 years. This is much longer than most other fixed rate mortgages, giving you extra peace of mind and making it easier to budget.
Immunity from rate rises. If you’re locked into a fixed rate deal and the BoE base rate increases, your mortgage rate will remain the same.
Option to overpay. You’ll usually be able to make overpayments on your mortgage up to 10% a year.

Cons

Lack of flexibility. If you choose a 5-year fixed rate deal, you’ll ideally need to stick with it for those 5 years. If the base rate falls during that time, you won’t benefit from lower repayments.
Early repayment charges. Fixed rate mortgages tend to have high fees if you repay your mortgage before the end of the fixed term.
Higher interest rates. Fixed rate deals tend to have higher interest rates compared to variable rate mortgages.

The Bottom line

If you want to make the most of low interest rates and lock in your mortgage rate for a set time, a 5-year fixed rate mortgage could be a good choice. Offering longer-term security than a two- or three-year fixed rate deal, but not requiring you to lock in for as long as 10 years, a 5-year deal could offer a good compromise. Just remember that you will have to pay an early repayment charge if you get out of your deal early.

Frequently asked questions

Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.

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Written by

Rachel Wait

Writer

Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio

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5-year fixed rate and tracker mortgages

With the UK's financial outlook making everybody nervous, use our calculator to see if a 5-year mortgage as low could restore some stability to your budgeting!