Halifax launches a extremely uncommon mounted charge mortgage – ought to debtors be tempted?

Halifax is launching an 18-month fixed rate mortgage deal in response to growing demand among borrowers for shorter term deals.

The one and half-year fix is aimed at homeowners looking to remortgage and could appeal to those expecting interest rates to fall next year and beyond.

Most mortgage products offer households the option of fixing for two, three, five or even 10 years.

Two year fixes are proving particularly attractive at the moment given that many people are expecting interest rates to continue heading lower.

The Bank of England has cut base rate twice since August, from 5.25 per cent to 4.75 per cent and economists and market analysts expect this rate cutting to continue next year. 

Shorter term fixes offer certainty over monthly payments while also allowing households to switch to a new deal sooner to capitalise on lower rates.

Halifax’s unusual fix, which is available from 28 November 2024, gives borrowers a chance to hedge their bets over an even shorter timeframe than the normal two-year deal.

Someone securing Halifax’s new deal will be able to remortgage by the middle of 2026 and given that most home loan offers last for six months, they’ll be able to lock in their next rate from the start of 2026 or potentially even by the end of next year.

The 18-month fixed rates are priced according to how much equity a remortgaging household has in their home.

Its cheapest 18 month deal is 4.37 per cent with a £1,499 product fee. This is reserved for those with at least 40 per cent equity or more in their home.

On a £200,000 mortgage being repaid over 25 years that would mean someone will pay £1,097 a month.

This is only marginally more expensive than the lowest two-year fixes aimed at remortgaging households. Santander and Barclays are both offering 4.27 per cent on their lowest two-year fixes.

There is also a 4.62 per cent rate for those with 25 per cent equity, a 5.04 per cent rate for those with 20 per cent equity or a 5.25 per cent rate for those with 15 per cent equity. All come with the £1,499 fee, albeit brokers say there is also £250 cashback.

Amanda Bryden, of Halifax, said: ‘Brokers have told us that their clients are keen to see more shorter-term products. 

‘With this latest launch, we’re delivering the certainty of fixed payments balanced with a term that offers more flexibility.’

Mortgage brokers are intrigued how the 18 month fix will be received by households. 

Last month, Santander revealed that the majority of its customers are favouring two-year fixed rates instead of five-year fixes.

This could mean that an even shorter 18-month fix could be popular among some borrowers.

Nicholas Mendes, mortgage technical manager at John Charcol said: ‘With most competitors providing a two-year fixed as the shortest term, this innovative product gives Halifax an edge in attracting remortgaging clients.

‘By adding this innovative option to their criteria toolkit, Halifax is clearly positioning itself to attract remortgaging opportunities ahead of competitors. 

‘This product allows clients to lock in a fixed rate while keeping their options open for a review slightly earlier than the standard two-year term, making it particularly appealing in the current uncertain rate environment.

‘It’s a clever addition to their arsenal, aligning well with the needs of borrowers seeking both security and adaptability.’

Jack Tutton, director at SJ Mortgages told the news agency Newspage: ‘This is an intriguing innovation from Halifax and it will be interesting to see how well it is received. 

‘With the forecasted base rate reductions for next year, we have seen a rise in the number of people looking for shorter fixed rate products. 

‘They are not always comfortable with the risks involved with some variable alternatives that may offer the flexibility to review your mortgage in the short term. It is interesting that they have only offered this to customers looking to remortgage their home. 

‘This must be down to them understanding that rates are higher than what many are used to. 

‘This product will allow them to review their mortgage at an earlier opportunity in the hope that interest rates are lower, which could be very attractive to some.’

Will an 18 month fix pay off?

Whether or not a this fix pays off or not will depend on how far and fast interest rates fall over the coming 18 months. 

At present markets are pricing that base rate will fall to 4 per cent by the end of next year, down from 4.75 per cent now.

But mortgage rate pricing does not react to interest rates. Instead, mortgage rates preempt interest rates.

This means that future interest rate cuts by the Bank of England are already somewhat baked into fixed rate mortgage pricing.

This is why the lowest priced five-year fixed rate products are hovering just above 4 per cent, rather than above the Bank of England base rate at 4.75 per cent.

If interest rates are cut in line with market forecasts next year and reach 4 per cent by the end of next year – the mortgage rates that will be on offer at the end of next year will reflect what markets then think will happen to interest rates even further in the future.

If, for example, lenders think interest rates will be cut to 3 per cent or lower by the end of 2026, then the fixed mortgage rates on offer may be lower than they are now.

However, if lenders are of the view that interest rates will remain at 4 per cent, then mortgage rates are unlikely to be lower and potentially they may be higher.

Forecasts about where interest rates will end up vary.

The most bullish forecasters on rate cuts have base rate coming down to as low as 2.75 per cent by the end of next year, with Goldman Sachs analysts announcing this rate forecast recently.

Meanwhile, economists at Capital Economics think the base rate will fall to 3.5 per cent by early 2026 where it will level off. 

Santander thinks interest rates will remain between 3 per cent and 4 per cent for the foreseeable future.

However, economists at Oxford Economics are predicting base rate will eventually fall to 2 per cent.

It’s just worth remembering that prior to the quickfire base rate rises between December 2021 and August 2023, the lowest mortgage rates have trended above base rate. That was the case at least between 2008 and 2022. 

This rather new phenomenon of the lowest fixed rate mortgages being below base rate is unlikely to last.

Of course, it’s not all about the direction of interest rates, it’s also about a personal circumstances.

Ravesh Patel, director and senior mortgage consultant at broker Reside Mortgages: ‘An 18 month fixed rate can be particularly beneficial in certain scenarios. 

‘It may appeal to individuals anticipating potential interest rate cuts in the near future or those planning significant life changes, such as relocating or remortgaging. 

‘By locking in a rate for a shorter duration, one can gain some protection against immediate market volatility while maintaining flexibility.’

Chris Sykes, technical director at mortgage broker Private Finance added: ‘These deals include a hefty product fee, so that obviously needs taking into account by borrowers tempted by these deals.

‘Don’t get me wrong I’m always up for more product choices and this will be perfect if someone is tempted to move in a year and a half, or expects rates to fall quickly within this period, but it is a bit of a strange product.’