Fixed rates are falling but what’s the catch?

Host: Pradesh

Guest: Ifthikar Mohammed — Mortgage Advisor & Accountant with over 10 years of experience

Introduction

The interest rates are falling — sounds like good news, right? But despite the Bank of England’s base rate increasing, mortgage rates seem to be dropping. So, what’s the catch?

Before we dive into the details, 90% of you haven’t subscribed to our channel yet — so please subscribe, give us a thumbs up if you enjoy this video, and drop your questions in the comment section below.

Q1: What exactly is the catch behind falling interest rates when the Bank of England base rate is increasing?

Ifthikar:

That’s a very good question. Many people get confused when the Bank of England raises rates. The first thing to understand is that not everyone needs to panic.

If you’re on a tracker or variable rate mortgage, your rate will likely go up when the base rate rises. However, if you’re on a discounted or fixed-rate mortgage, you might not be affected immediately.

Now, fixed-rate mortgages don’t directly correlate with the Bank of England base rate. They are tied to money market rates (also known as swap rates).

For example, a two-year fixed rate depends on the two-year swap rate, and a five-year fixed depends on the five-year swap rate. These swap rates move according to market expectations of future interest rates — not necessarily the current base rate.

So, even if the Bank of England base rate goes up, fixed mortgage rates can come down because banks expect lower rates in the future.

Q2: What’s your message to first-time buyers right now? Is this a good time to buy a property?

Ifthikar:

That’s a great question. A couple of years ago, first-time buyers benefited from extremely low interest rates — as low as 0.1% — which we’ve never seen before.

But now, we’re returning to normal levels of interest rates that are more aligned with inflation targets.

However, some property values have dropped, which means even though you’re paying a bit more in interest, you might be buying a property at a lower price.

So yes, this could be a good time to buy. You could also consider a shorter-term deal, like a two-year fixed mortgage, to take advantage if rates drop further in the near future.

Q3: Should I go for a two-year or a five-year fixed mortgage deal?

Ifthikar:

This is one of the most common questions right now — and the answer depends on your circumstances.

Generally, two-year deals are more expensive, while five-year deals are cheaper. This is because markets expect rates to drop in the coming years.

The five-year rates are lower because lenders believe interest rates will fall and inflation will stabilize within a couple of years.

However, no one can predict this perfectly — it’s what we call a “crystal ball question.” Based on current analysis, we expect some improvement after about 12–24 months.

So, it depends on whether you want short-term flexibility or long-term stability.

Q4: What should people doing a remortgage or moving homes consider now?

Ifthikar:

Many homeowners are facing a shock because they fixed their mortgage a couple of years ago when rates were very low — around 1.5%. Now, they’re facing rates closer to 4–5% or even higher.

This can mean an increase of £200–£1,000 per month, depending on loan size.

So, here’s what I recommend:

Plan early. Don’t wait until your deal ends — speak to an advisor now.

Budget in advance. Simulate your future payment and adjust your expenses accordingly.

Consider extending your mortgage term — not ideal, but better than defaulting.

Use savings to reduce your balance or explore offset mortgages if you have spare cash.

Cut unnecessary expenses — streaming services, eating out, etc. Every bit helps.

Always compare deals. Even a 0.2% difference could save you hundreds per month.

And most importantly, speak to your advisor or bank. They can help you find the best option for your financial situation.

Q5: How should people compare deals with different rates and product fees?

Ifthikar:

Another good question. The cheapest interest rate doesn’t always mean the cheapest deal overall.

When comparing, you should look at three main components:

Total interest paid during the deal term (e.g., over 2 years).

Product fees and any associated charges.

Mortgage balance at the end of the term.

Sometimes a 4% deal with a £1,499 product fee can be more expensive than a 5% deal with no fee, depending on your loan size.

So, calculate the total cost before deciding — or let your mortgage advisor help you compare.

Q6: What’s happening in the Buy-to-Let market right now?

Ifthikar:

Buy-to-Let (BTL) mortgage rates have always been slightly higher than residential ones because lenders consider them higher risk.

Currently:

Residential rates: around 4–5%

Buy-to-Let rates: around 5–6%

HMOs (Houses in Multiple Occupation) are even higher because they involve more tenant turnover.

So, while the rates are high compared to last year, they’re actually lower than they were right after the mini-budget, meaning the market is stabilizing.

Q7: Has the Buy-to-Let stress test situation improved?

Ifthikar:

Yes, slightly. During the peak of the chaos, stress tests reached 8–8.5%, which made it very difficult for landlords to borrow.

Now, things are improving. Banks are offering:

Better stress test rates for longer-term deals.

Top slicing, where they consider your personal income to offset shortfalls.

Variable rate options that can pass affordability more easily.

While not perfect, it’s definitely better than before. We’re hoping that as rates continue to ease, stress testing will too.

Key Takeaways

Be proactive — plan ahead for rate changes.

Stay calm — the market will eventually stabilize.

Seek professional advice — every person’s circumstances are different.

Final Thoughts

If you’d like tailored advice, reach out to us — our contact details are in the description below.

Thank you for watching!

If you found this video useful, please like, share, and subscribe to our YouTube channel.

And don’t forget to click the bell icon to stay updated with the latest and greatest in UK mortgages.

I’m Pradesh from WIS Mortgages, Accountancy & Insurance — see you in our next video!