Should you choose a two or five-year fixed-rate mortgage?

What does a two-year fixed mortgage look like?

A two-year fixed mortgage is a type of mortgage where the interest rate you pay (and therefore your monthly repayments) is fixed for two-years. This means if the Bank of England interest rate changes, it doesn’t make any difference to your repayments during this period.

At the end of those two years, you will normally be switched onto the lender’s  standard variable rate (SVR), which will be higher, meaning your monthly repayments will rise. 

At this point you have the option to switch to a new deal with the same lender. Alternatively, you can remortgage to a deal of your choosing either independently or via a mortgage broker. 

Understanding the current two and five-year fixed mortgage rates, as well as 

Mortgage rate forecasts are key to determining which option best suits your needs.

What does a five-year fixed mortgage look like?

A five-year fixed mortgage is the same as a two-year fixed mortgage, except that the monthly payment structure lasts for five years. 

While you are paying off a fixed-rate mortgage, your interest rates will remain the same until the payment period ends.

What are the main differences between a two and five-year fixed mortgage?

The key difference between a two and five-year fixed mortgage rate is the time they are fixed for. As their names suggest, a two-year fixed rate is for two years, while a five-year fixed rate is for five. 

The difference between rates charged on two and five year deals will vary according to what is happening in the wider economy. 

Traditionally, shorter-term mortgages are cheaper than the longer-term deals. This is because of the increased certainty and stability five-year fixed-rate mortgages provide. 

However, due to market fluctuation and the Bank of England’s base rate, this interest rate disparity is not guaranteed. 

Since 2022, it has not been unusual for two-year fixes to be more expensive than five-year rates. 

Does the interest rate on a two and five-year mortgage differ?

The interest rates for two and five-year fixed mortgages differ depending on the Bank of England base rate and inflation. 

In January 2025, the average interest rate on a two-year fix was 4.33% (60% LTV), slightly more expensive than 4.22% for the average five-year fix, according to figures from RightMove. The average SVR was 7.99%..

Following the current mortgage rate forecast is crucial for making the best financial decision for your mortgage.

The pros and cons of a two-year fixed mortgage

There are both pros and cons with a two-year fixed mortgage.

Let’s take a look at the advantages and disadvantages of a short-term fixed mortgage.

The pros of a two-year fixed mortgage

• Flexibility: A two-year mortgage's short-term nature means you have the flexibility to adapt your plan and take advantage of economic changes as they arise instead of being stuck with one rate for half a decade.
• Potentially cheaper rates: Traditionally two-year rates are cheaper than longer fixes, however at the start of 2025 that wasn’t the case

The cons of a two-year fixed mortgage

• Higher potential fees: If you’re regularly switching between short-term fixed mortgages, the fees you rack up can become significant.
• Renewal risk: After the initial term, a two-year fixed mortgage may need to be remortgaged to avoid reverting to a higher rate. If interest rates have risen during this time you may have been better off with a five-year deal.

The pros and cons of a five-year fixed mortgage

Similar to a two-year fixed mortgage, the five-year option also has pros and cons.

A longer commitment to paying off a mortgage offers advantages and disadvantages, and understanding them can help you decide which length of fixed mortgage works best for you. 

The pros of a five-year fixed mortgage

• May have lower rates than a two year deal: At the start of 2025 a five-year fix was marginally cheaper than a two-year fix
• Beat volatile interest rates: If interest rates are predicted to increase, being locked into a five-year mortgage provides the luxury of avoiding higher payments. This can be highly beneficial, especially if you are settling down into a “forever” home.
• Avoid the stress of remortgaging: Remortgaging is potentially expensive and tedious. With a long-term plan, you won’t have to deal with one for the next five years.
• Offers long-term stability: Five years is a long time to not face any potential hikes in interest rates. This results in a longer period of financial stability.

The cons of a five-year fixed mortgage

• Rigidity: When you’re locked into a five-year fixed mortgage, your repayments won’t fall if there is a reduction to interest rates
• Long-term commitment: While a long-term fixed mortgage offers stability, it also prevents flexibility. The five-year commitment may become burdensome over time.

What is the forecast in 2025 for two and five-year fixed mortgages?

The current prediction for mortgage rates in 2025 is that they will decrease, with economists forecasting at least two cuts to base rate over the course of the year.

However, with inflation still proving stubborn the pace of reductions may not be as fast as previously expected.

Seek expert financial advice

A mortgage is a serious financial commitment.

If you are looking for a short-term, flexible mortgage, a two-year fixed option will likely work best for you, while those looking to work on steadier, long-term financial goals may benefit more from a five-year fixed mortgage. However, before deciding either way it also makes sense to look at the outlook for interest rates and take a view on what’s likely to happen over the next few years.

To learn more about fixed-rate mortgages and how to find the most suitable one, get matched with a mortgage broker at Unbiased for expert financial advice.