While mortgages offering a three-year fixed interest rate for first-time buyers remain rare, a flurry has hit the market this month. But is that this mid-length term worth going for over more prevalent two-year or five-year options?
Aldermore features a variety of three-year fixed-rate mortgage options across its no-fee deals for all those having a 5%, 10% or 15% deposit. The lender has also lowered the first repayment charges on its three-year and five-year fixed-rate mortgages, offering borrowers more flexibility if their plans change.
Meanwhile, West Bromwich Building Society has added a three-year fixed interest rate to its 95% loan-to-value (LTV) range priced at 3.14%.
We check out how common three-year deals are and what the benefits have this term in contrast to a shorter two-year or longer-lasting five-year fixed-rate.
Two- vs three- vs five-year mortgages
When it comes to fixed-rate mortgages for first-time buyers, two-year deals would be the most typical term provided by lenders.
Which? found there have been 200 two-year fixed-rate deals to select from on an 85% LTV, and 125 at 95% LTV.
It's a similar story for longer-lasting five-year terms, with 179 available at 85% LTV, and 113 available at 95% LTV.
Three-year fixed-rate deals in comparison are relatively rare – there are just 52 offered at 85% LTV and 47 at 95% LTV.
Typically the more you fix your mortgage, the more a lender will charge.
However, Which? analysis of Moneyfacts data implies that isn’t always true. On average, three-year deals are less costly than two-years deals in an 85% LTV, and also the same price in a 90% LTV.
The best three-year fixed-rate mortgages
Below we’ve selected the lowest-rate three-year fixed-rate mortgages available on the market at this time for first-time buyers on the 85%, 90% and 95% LTV.
| LTV | Lender | Initial rate | Deal | Fee | Revert rate | APRC |
| 85% | Halifax Intermediaries | 1.86% | Fixed to 30/06/2022 | lb999 | 4.24% | 3.8% |
| 90% | Barclays | 2.09% | Fixed to 31/07/2022 | lb999 | 4.24% | 3.8% |
| 95% | Barclays | 2.75% | Fixed to 31/07/2022 | lb0 | 4.24% | 3.9% |
How long in the event you treatment for?
A fixed-rate mortgage may be a wise decision if you want certainty that the monthly interest repayments won’t suddenly skyrocket.
However, it can be tricky to choose how long to repair your rate.
The mortgage term you choose will largely rely on what you can afford to pay, your future plans and just what you believe may happen in the economy.
What are you able to afford?
Typically, two-year fixed rates are the cheapest option – fixing for longer may mean you pay more every month.
But it's not always the situation, so it's worth shopping around and locating the cheapest deal for each term.
You can check the cost using a repayment calculator to see what your choices realistically are.
Read more: finding the very best mortgage deals
What are the future plans?
Your future plans will also be important when determining the length of your deal. Do you plan to stay in exactly the same home for 3 or 5 years? Or will you need to move after two?
With longer fixes, you should look out for early repayment charges. This can be a percentage fee charged in your outstanding loan if you opt to repay your mortgage prior to the deal ends – for instance, because you’re selling up and moving.
If you're not certain of your plans, you should potentially stay with a shorter deal or ensure the mortgage you are going for is portable, so that you can bring it with you if you decide to move.
Do you want to save on remortgaging?
Fixing for longer means it can save you around the price of remortgaging each time your deal comes to an end.
Remortgaging is likely to involve you paying product, valuation and legal fees that may cost thousands.
By always choosing a two-year deal, you would need to remortgage 5 times in Ten years; with three-year deals, you only need to get it done 3 times and with a five-year term you would only have to remortgage twice.
What do you think may happen to the economy?
A longer-term fix may also help guard you against adverse alterations in the economy.
If the Bank of England decides to hike the bottom rate, for example, fixed-rate mortgages are likely to become more expensive.
That said, with ongoing Brexit uncertainty, you might not what to treatment for too long, as rates could fall further and also you wind up paying more than you need to.
