It happened to me last year.
I bought a property back in 2020 with a mortgage and, because it’s a slightly unusual property and not straightforward to finance, I ended up taking a mortgage with an initial five-year fixed rate at 5.3%.
In round figures, I borrowed £113,500 and the monthly payments were £499.80.
I thought it was expensive at the time.
Remember, in 2020 we were all shut up at home and Bank of England Base Rate was 0.1%.
But, as I say, it is an unusual property and, although the mortgage felt expensive, I’d rather use someone else’s money than my own.
Fast forward five years and that fixed rate came to an end in 2025.
I had been conscious of this for a while, but because of one thing or another, I hadn’t dealt with it properly.
That is, until I received a letter from my lender which basically said:
“Your fixed rate is coming to an end and from 31 August 2025 your monthly payments will be £950. If you are happy with that, do nothing. If you aren’t happy with that, you can come to our website and choose another product or you can remortgage with another lender. Your choice.”
I’m paraphrasing, obviously.
Lenders don’t usually write quite like that, although it would be more entertaining if they did.
But £950 a month?
Come on.
That certainly got my attention.
The point is that my old fixed rate of 5.3% no longer looked outrageously expensive. Not great, but not completely ridiculous either.
That is quite a shift from how it felt in 2020.
The quick option
Because the “one thing or another” was still in play, I still didn’t have time to get into a full-blooded remortgage.
So I took the easier option and went to the lender’s website to see what alternative products they would offer me.
What did I find?
Very interesting.
There was a whole array of two-year and five-year fixed rates.
Some had fees.
Some had even higher fees.
Some had no fees.
And all of them, whether two-year or five-year fixed, reverted to Bank of England Base Rate plus 3.25% at the end of the fixed period.
So I had to get some scrap paper and a pen and do some maths.
Yes, actual maths.
There are many glamorous moments in property investing. This was not one of them.
Rate versus fee
As you’d expect, where there was no fee, the headline rate was higher.
Where there was a higher fee, the headline rate was lower.
Nothing unusual there.
But what my basic maths showed me was quite interesting.
If I took any of the fixed-rate products and worked out the total amount I would pay over the fixed-rate period, including the fee, the amount of money I would pay was broadly the same for each product in that group.
In other words, the total cost over two years was very similar across the two-year fixes.
And the total cost over five years was very similar across the five-year fixes.
That meant, for me, the main question was not really:
“Which product has the lowest headline rate?”
The main question was:
“Do I want a two-year fix or a five-year fix?”
That is a very different question.
Two years or five years?
My thinking started along these lines.
Bank Rate had already come down from its peak, and it might come down further.
Or it might not.
It could sit where it was for a while.
It could even go back up if inflation started causing trouble again.
None of us knew.
We could guess.
We could have considered opinions.
We could read lots of clever people making confident predictions, some of whom would be right by accident.
But none of us knew.
The important point with this lender was that, wherever Bank Rate sat at the end of the fixed-rate period, they would add 3.25% to calculate the reversionary rate.
So if Bank Rate were 3.75%, the reversionary rate would be 7%.
If Bank Rate were 3%, the reversionary rate would be 6.25%.
If Bank Rate were 2.5%, the reversionary rate would be 5.75%.
That mattered.
Why I chose the five-year fix
Taking all of this into account, I decided to opt for a five-year fix at 6.14% with no fee.
I know I could have had a lower headline rate if I had chosen a product with a fee.
But I also knew that, over the five years, the total amount I would pay was broadly the same.
And I knew I could opt to have any fee added to my mortgage balance.
I didn’t want to do that because it would reduce the equity in the property, and I have my own reasons for wanting to preserve the equity.
So, no fee was the decision.
Why did I go for five years?
Certainty.
Security.
And because, frankly, I didn’t know what interest rates would do.
Nobody did.
Rates could come down for a while and then push back up sharply, especially if inflation took off again.
Anything could happen.
And one more bit of maths clinched it for me.
If you deduct 3.25% from 6.14%, it means Bank Rate would have to fall to 2.89% for the reversionary rate in five years to equal my new fixed rate.
To beat it, Bank Rate would need to be below 2.89%.
Was that possible?
Of course.
Did I think it was likely enough to base my decision on it?
No.
So I was happy to take my chances and go for the security of knowing what I would pay for the next five years from 31 August 2025.
That suited me.
It won’t suit everyone.
That is the point.
The final step
The final step was simple enough.
I emailed my lender with my account number and my preferred mortgage product number, and that was that for five years.
Not exciting.
But useful.
And sometimes useful is better than exciting.
The main lesson
The point is, and I know I’ve said this before, but don’t just go by the headline rate.
Look at all the costs.
Look at the product fee.
Look at whether the fee is added to the loan.
Look at what happens at the end of the fixed period.
Look at the reversionary rate.
And think about what might happen over the next two or five years.
It all matters.
Every lender is different.
Every product is different.
And all of our needs and financial situations are different.
So if you have a similar decision to make, please don’t just copy what I did.
Not unless you do your own due diligence and it just so happens that a five-year fixed rate is right for you too.
For me, on this property, at that time, with that lender, it made sense.
For someone else, a two-year fix might have been better.
For someone else again, a full remortgage to another lender might have been the answer.
There is no universal right answer.
Annoying, I know.
But true.
As ever, this isn’t advice. Don’t draw down loans or mortgages without taking advice from a good mortgage broker.
If you don’t have a mortgage broker, or you’d like a second opinion, I’ll be happy to introduce you to mine.
Just email me at:
and I’ll make the introduction.
Here’s to successful property investing.
Peter Jones
Author, property investor & ex-Chartered Surveyor
P.S. If you’d like help thinking through your buy-to-let strategy properly, you might find my Successful Property Investor’s Strategy Workshop useful.
You can find out more here:
