Mortgage lenders cut rates to meet end-of-year targets: compare the cheapest fixed-rate mortgage deals

Adam Williams
The Telegraph
A fixed-rate mortgage may have a low rate but there will often be a high arrangement fee to offset it - Howard McWilliam
A fixed-rate mortgage may have a low rate but there will often be a high arrangement fee to offset it - Howard McWilliam

Major mortgage lenders are cutting interest rates as they look to lure in new customers and meet their year-end targets.

December is often a quiet time for the housing market, something which has prompted banks and building societies to lower rates to try and attract the few customers looking for finance.

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Interest rates for first-time buyer deals have dropped across the board, according to data provider Moneyfacts. The average rate for a two-year fixed mortgage with a 5pc deposit is now 3.33pc, down from 4.02pc a year ago.

Those customers who saw their variable rates increase following the Bank Rate rise in August could save thousands of pounds by switching to a cheaper deal.

This guide tells you everything you need to know about fixed-rate mortgages and the best deals available. The tables throughout show the best fixed rates over two, three, five and 10 years and update automatically when new offers become available.

For more tailored fixed-rate mortgage deals, go to our mortgage comparison toolThis shows a selection of top rates based around your requirements. Scroll down for our list of the current best-buy mortgages.

What affects mortgage rates?

The pricing of fixed mortgage rates depends on several factors, but mostly whether banks can get their hands on cheap money to lend out. They usually get it from savers or by borrowing from other banks on the money markets, buying money at a certain rate – the "swap" rate – for a certain period.

These swap rates react to expectations of future interest rates and inflation. 

Action taken by the Bank of England can have an impact too. The Bank has made it clear in the past that if runaway house prices are a risk and ultra-low mortgage rates are a cause, the latter will be policed away – possibly in the form of heaping new costs or capital requirements on the banks.

Lenders would be expected to pass on the increased costs in the form of higher rates. 

<span>Mark Carney, Governor of the Bank of England</span> <span>Credit: Getty Images </span>
Mark Carney, Governor of the Bank of England Credit: Getty Images

The difference between fixed and variable mortgage rates

If you take out a fixed-rate mortgage the interest rate you pay will be fixed for an initial period, regardless of rate changes made by the Bank of England or moves in the markets.

Fixed rates are typically for two, three, five and occasionally 10 years, with longer terms costing more. Once the fixed period ends, borrowers are pushed on to the lender's "standard variable rate", which can be much higher.

Variable mortgage rates can vary during the mortgage term, meaning borrowers will not have the security of knowing how much their repayments will be every month.

The cheapest fixed deals – for borrowers with big deposits

The three tables below show the best fixed rates at two, three, five and 10 years for a buyer with a large deposit or equity of at least 40pc. First-time buyers or those with very small deposits should scroll down further for the best buys relating to them.

It is well worth remembering that these continually up-to-date tables rank mortgages by rate and exclude other associated costs such as arrangement fees. High arrangement fees often accompany the lowest mortgage rates. Where this is the case borrowers with smaller mortgages, or shorter mortgage terms, might end up better off by choosing a deal with a slightly higher rate and lower upfront fees. 

Again, see our mortgage comparison tool for more detailed information about the costs applying to individual mortgage deals.

For those who want the peace of mind of a fixed monthly cost, and for anyone who doesn't want the risk of fluctuating interest rates, fixed-rate mortgages are appealing.

Best two-year fixes (40pc deposit)

Best three-year fixes (40pc deposit)

Best five-year fixes (40pc deposit)

The cheapest fixed deals – for first-time buyers or those with small deposits

As with the tables above, the best buys shown here make an assumption about how big a property buyer's deposit is or how much equity an existing owner has in their home. The tables below assume a 10pc deposit or equity.

These borrowers, as above, should also be aware of the effect that upfront arrangement fees can have on the overall cost of their deal.

Best two-year fixes (10pc deposit)

Best three-year fixes (10pc deposit)

Best five-year fixes (10pc deposit)

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