Fixed Deals rise... but don't Ignore Expat Discount deals!
Recent instability in the Middle East is having a direct knock-on effect on UK mortgage pricing. Although the conflict is geographically far from the UK , it affects global oil and gas prices, which in turn push inflation expectations higher.
When inflation fears rise, UK gilt yields and swap rates usually rise too — and these are the key benchmarks lenders use to price fixed-rate mortgages. That is why many UK lenders have recently increased fixed mortgage rates even though the Bank of England has not necessarily raised base rates.
For borrowers, this creates a confusing picture: headlines say rates are rising, yet some mortgage deals still appear relatively cheap. The reason lies in the type of mortgage product being chosen.
Why Fixed Rates Look Much Higher Than Discount Deals
Fixed-rate mortgages are priced based on future expectations. Lenders look at where markets think inflation and interest rates are heading over the next 2, 3, or 5 years. Because there is increased uncertainty, lenders are building in a safety margin — making fixed deals more expensive.
Discount mortgages, by contrast, are linked to a lender’s standard variable rate (SVR) and often offer a temporary reduction ie: -2.0% to 3.0% below that rate. They can look attractive because they are not priced on long-term swap market expectations in the same way;
The Downside is:
- They expose borrowers to future rate rises on lenders SVR rates.
The Upside is:
- Borrowers can benefit if lenders reduce their SVR rate downward with BOE downward movements. (however the lender is not obliged to reduce)
Could Fixing In Be a Risk?
Fixing your mortgage rate gives certainty, but it can also carry risk if interest rates fall in the future.
We saw something similar during the pandemic. When COVID created a global emergency, governments stepped in with huge financial support like furlough schemes, and central banks cut interest rates to historic lows to keep economies moving. Mortgage rates dropped sharply as a result.
If current uncertainty were to develop into a wider international economic crisis, something similar could happen again. No one knows for certain. Rising energy prices may push inflation higher, which would normally pressure central banks to raise rates. But if higher costs begin hurting growth too much, governments and central banks may instead decide to reduce rates to stimulate the economy.
That is why locking into a long fixed rate today could be risky: if rates fall significantly in the next year or two, borrowers tied into higher fixed deals may miss out on cheaper borrowing.
Example: If You Fix Too High and Rates Fall
Imagine you take a 5-year expat fixed mortgage today at 5.69% on a £200,000 mortgage.
Today’s best expat discount variable deal is around 4.30%.
Now suppose:
- The Bank of England cuts rates by 0.25%
- Lenders reduce their variable mortgage rates accordingly
- The discount rate falls to 4.05%
That creates a difference of:
5.69% fixed rate – 4.05% variable rate = 1.64% higher
If that gap remained for 3 years:
- 1.64% x £200,000 = £3,280 extra interest per year
- Over 3 years = £9,840 more interest paid
So while fixing protects you if rates rise, it can cost you heavily if rates move down and you are locked into a higher deal.
In summary fixing gives payment security — but in uncertain markets, certainty can come at the price of flexibility.
As an expat you may be unsure what might be possible or what your next move should be and we are on hand to help explore the options available to you.
Market Updates
- A world at war - still thinking of investing ? here is an objective view on the scene for investing ! get it here.
- Bank Of England rates held at 3.75% ..all the committee members agreed to hold, with expectation of a flat year read the report here.
- MTD - Making Tax Digital - becomes a reality this month April 26. Get prepared now with this podcast
- 90% expat mortgages still being offered and with discount deals from 5.55% & fixed from 5.79% is now the time to act ? over 160+ countries accepted as the Expat country of residence.
Next Steps...
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