Choosing between a fixed-rate and variable-rate mortgage is one of the most important decisions you will make when buying a home or remortgaging in the UK. Each type has distinct advantages and drawbacks, and the right choice depends on your financial situation, risk tolerance, and outlook on interest rates.
Fixed-Rate Mortgages
A fixed-rate mortgage locks in your interest rate for an agreed period, most commonly two or five years, though some lenders offer seven or even ten-year fixes. During this period, your monthly repayments stay exactly the same regardless of what happens to the Bank of England base rate or the wider economy. This gives you certainty and makes budgeting straightforward. The main downside is that if interest rates fall, you will not benefit from lower payments unless you pay an early repayment charge (ERC) to switch. Fixed rates are often slightly higher than the initial rate on variable products because you are paying a premium for that certainty.
Standard Variable Rate Mortgages
Every lender has a standard variable rate (SVR), which is the default rate you move onto when your initial deal period ends. The SVR is set entirely at the lender's discretion, meaning it can change at any time and by any amount. SVRs are typically higher than introductory deal rates, which is why most borrowers remortgage before their deal expires. However, SVR mortgages usually have no early repayment charges, giving you the flexibility to leave at any time. Very few borrowers actively choose an SVR mortgage from the start, but some end up on one if they do not remortgage promptly.
Tracker Mortgages
Tracker mortgages are linked directly to the Bank of England base rate plus a set margin. For example, a tracker might be set at base rate plus 1%, so if the base rate is 5.25%, you would pay 6.25%. When the base rate goes up, your payments increase by exactly the same amount, and when it drops, your payments fall. This transparency is appealing to many borrowers because unlike an SVR, the lender cannot arbitrarily change your rate. Tracker deals are usually available for two to five years, though lifetime trackers exist. The risk is clear: if the base rate rises significantly, your monthly costs could increase substantially.
Discount Mortgages
Discount mortgages offer a reduction on the lender's SVR for a set period. For instance, if the SVR is 7.5% and you have a 2% discount, your rate would be 5.5%. The important distinction from a tracker is that your rate is linked to the SVR, not the base rate. Since lenders can change their SVR independently of the base rate, there is less transparency about when and why your rate might change. Discount mortgages can offer good value when SVRs are competitive, but they carry the risk of the lender raising their SVR even if the base rate stays the same.
Offset Mortgages
Offset mortgages link your savings account to your mortgage. Instead of earning interest on your savings, the savings balance is offset against your mortgage debt, reducing the amount you pay interest on. For example, if you have a 200,000-pound mortgage and 30,000 pounds in savings, you would only pay interest on 170,000 pounds. This can be particularly tax-efficient for higher-rate taxpayers since you are effectively earning a return on your savings equal to your mortgage rate without it being taxable. Offset mortgages tend to have slightly higher interest rates than standard products.
When to Choose Each Type
A fixed rate is typically best if you want certainty in your budgeting, if you believe interest rates may rise, or if you are stretching your finances and cannot afford payment increases. A variable rate, whether tracker or discount, might suit you if you believe rates will fall or stay stable, if you have financial headroom to absorb potential payment increases, or if you want the flexibility to overpay or switch without penalties. Consider your personal circumstances, how long you plan to stay in the property, and whether you could cope with higher payments if rates rose by two or three percentage points.
What Happens When Your Deal Ends
When your initial mortgage deal period finishes, you will automatically move onto your lender's SVR, which is almost always more expensive. Most borrowers should start looking at remortgage options around three to six months before their deal expires. This gives you time to secure a new competitive rate and ensures a smooth transition without spending any time on the costly SVR. Your lender will usually write to you as your deal end date approaches, but it is wise to set your own reminder well in advance.