Martin Lewis issues warning to UK households who are on two-year fixed mortgage

The BBC Sounds podcast host has warned people who are on two-year fixed rates with their mortgage.

Martin Lewis has urged everyone who has a mortgage to consider fixing - but also warned two-year fixes AREN'T as cheap as five-year. The BBC Sounds podcast host has warned people who are on two-year fixed rates with their mortgage.

Chatting to mortgage broker Monty on the pod, Mr Lewis said: “Mortgage rates are finally dropping. The cheapest five-year fixes are easily limboing below 4%, while the cheapest two-year fixes are just scraping under 4%. And this is even though the Bank of England voted to keep interest rates on hold at 5% last week.

"And what people need to understand is, while the Bank of England UK base rate tends to dictate how variable rate mortgages, standard variable or tracker mortgages move, variable rate mortgage can also move for other reasons too, they move with the Bank of England base rate, fixed rates, the rate of a new fix, they tend to move with city swap rates, which to oversimplify to an extent, are the market's prediction of future interest rates.

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"So the market, what we can see is saying, look, we think interest rates are dropping and dropping longer in the long term, which is why five-year mortgages are cheaper than two-year mortgages. So we've seen fixed rate mortgages come down.”

Mr Lewis said: “We're talking about the fact mortgage rates have dropped below 4%. I mean, they've been below that for a time now, but the mood music in interest rates, UK interest rates are going down and fixed rate mortgages are already factoring in some of the predicted future rises.

"So many people are saying, is this the time to fix if you're not fixed already, or you're coming to an end of your deal, or you've hideously moved on to the standard variable rate, which would be around 8%. And whereas the fixes we're talking about, 5 years in the 3.8-ish, and 2 year fixes, because long-term predictions are cheaper, 5 years are cheaper than 2 years, in about, what's it called, an inverse yield curve? Yeah.”

Promoting the podcast on Twitter, now X, Mr Lewis said: "This is really worth a listen for anyone with a mortgage - especially if your deal will end soon (or already has and you've done nothing), or you've looking to get a new property (as a first timer or remortgager). Thanks to @montysblog for joining me."